The world’s fourth-most-populous nation, Indonesia boasts unique cultures, World Heritage Sites, pristine beaches, unparalleled diving and some of the world’s rarest wildlife. Its tropical climate and balmy temperatures of between 28°C and 34°C in coastal areas and 23°C in the mountain areas, with little variation from one season to the next, make the archipelagic nation an ideal beach holiday destination. Indeed, Indonesia should be one of the world’s leading tourist destinations, yet it has consistently ranked behind neighbouring Thailand and Malaysia in tourist arrivals.
Since taking office in 2014, the government of President Joko Widodo has been working hard to change that. It has recognised tourism as a major pillar of economic growth – making the Ministry of Tourism (MoT) a standalone ministry for the first time – and set a target of 20m foreign visitors by 2020, when the industry is expected to be Indonesia’s biggest source of foreign exchange earnings.
To support its ambitions, officials have drawn up plans to improve infrastructure such as roads, aviation, ferries and basic utilities across the archipelago. The government has also responded to industry criticism and removed visa requirements for the citizens of scores of countries.
In addition, in 2015 it more than quadrupled the budget for its tourism campaigns to show the world’s travellers that the whole of Indonesia – and not just Bali, the Hindu island that has for decades been the centre of the archipelago’s tourism industry – is eager to welcome them.
Growing Numbers
The authorities set a target of 10m visitors from overseas in 2015 and managed to exceed that, despite a global economic slowdown that also affected many of Indonesia’s neighbours. Some 10.4m foreign tourists visited Indonesia in 2015, including those who arrived through land borders in Kalimantan (the first time they have been included), according to the MoT, compared with 9.4m in 2014. The growth in visitor numbers was faster than the ASEAN average of 5.1% and the global average of 4.4%, Arief Yahya, the minister of tourism, told OBG.
Domestic tourism also increased in 2015 amid steady economic growth that helped boost incomes among the local population. Citizens recorded an estimated 255m trips in 2015, according to the MoT, which was slightly higher than the official target of 254m trips.
Tourism is Indonesia’s fourth-biggest source of foreign exchange earnings after oil and gas, coal, and palm oil, but as government initiatives to develop the industry take hold Yahya expects it to become the largest. By 2019 the government expects tourism to comprise 15% of GDP, up from 9% in 2014. “The president is looking for quick wins – low-hanging fruit – and tourism is a quick win,” Budi Tirtawisata, CEO of travel and tourism group Panorama Group, told OBG.
Citizens of some 169 countries are now able to travel to Indonesia without a visa, making the archipelago one of the most open countries in the world. The removal of visa requirements is part of a wider government attempt to reduce the bureaucratic burden in key industries. For 2014 (the latest figures available), 79% of all international visitors (7.48m) came from the Asia-Pacific region, led by Singapore and Malaysia, according to Statistics Indonesia (BPS). Some 1.05m tourists from mainland China visited Indonesia, the fourth-highest and a 22% increase on 2013.
China
Chinese arrivals reached 1.2m in 2015, with a target of 2.1m set for 2016, which would see China overtake Singapore, Malaysia and Australia as the largest source market for Indonesia. Most Chinese tourists visit Bali, but others are attracted by diving in regions such as Sulawesi. The decision to waive visas for Chinese visitors bolstered the rise in arrivals in the second half of 2015.
As well as removing visa requirements, Indonesian officials have made regular visits to China to showcase Indonesian destinations and encourage mainland companies to invest in the archipelago, particularly in the infrastructure that is vital to tourism development. Chinese hotel company Plateno Group is one of the most active investors, with 10 hotels either open or under construction in destinations including Bali and Medan.
Indonesia is hoping to attract 12m foreign tourists in 2016, with a focus on some of its biggest markets, including China, ASEAN and Europe, as well as emerging sources, such as India and the Middle East. Government statistics on tourism are now released monthly and show a steady climb in arrivals since the start of the year. In April 2016 arrivals reached 855,316 visitors for a cumulative total of 3.26m for the first four months of the year, 6.5% higher than the same period in 2015.
The World Travel & Tourism Council (WTTC), which tracks the industry’s development across the globe, expects Indonesia’s tourism industry to contribute 3.3% to total GDP by 2026, with growth of 5.3% a year in the decade from 2016. By 2026 the WTTC estimates that the industry will employ more than 4.1m people directly, and 12.8m in total. It ranks Indonesia 21st in the world for growth in 2015, and 33rd over the longer term.
The World Economic Forum (WEF) ranked Indonesia 50th of 141 countries in its 2015 Travel and Tourism Competitiveness Index. It ranked Indonesia highly in terms of price competitiveness – helped by the continued weakness of the rupiah – and its commitment to developing the industry, but identified shortcomings in areas including infrastructure – for tourism, as well as more generally – environmental sustainability and IT.
Hotel Expansion
Over the past few years, as the number of visitors has increased and domestic travel has expanded, investment has flowed into the construction of new hotels, from three-star budget properties to high-end luxury hotels and resorts. In Jakarta the building boom has led to a jump in supply and a drop in occupancy rates, according to real estate firm Colliers and hospitality consultancy Horwath HTL, and more hotels are scheduled to open in 2016. “Rates are soft because of supply,” Matt Gebbie, Pacific Asia director of Horwath HTL, told OBG. “People got excited (in 2011-13) and expected demand to grow at a faster pace than it has.” Gebbie said that Jakarta remains largely a corporate destination so is more likely to be affected by the slowdown in the global economy and the oil and gas industry.
Figures from Colliers show the average occupancy rate for luxury hotels, which are mainly located in Jakarta’s central business district (CBD), falling to 47% in the first quarter of 2016 from 65% in 2013, while occupancy at upper upscale properties dropped from more than 70% in 2013 to 47.5%, and for upscale accommodation to 55.6%. In the CBD hotels’ average daily rate dropped by 2.3% year-on-year to $120.28, but outside the CBD it increased by 5.9% to $57.97, according to Colliers.
Security
Although a bomb and gun attack took place in the capital in early 2016, the government’s efforts to reassure the public and visitors about security in the wake of the Bali bombings in 2002 appear to have worked. The 2016 incident had a “short-time effect on the business climate in Jakarta”, Colliers said, but the rapid official response meant there was little long-term impact.
Most hotel construction is focused on Jakarta and Indonesia’s top tourist destination, Bali. Colliers estimates an additional 10,515 starred hotel rooms will become available in Jakarta over the next three years, including 2927 five-star rooms and 5426 four-star rooms. Among the openings in 2016 are Fraser Place, Four Seasons and the Westin. In Bali, 115 new hotels offering 15,000 rooms are due to open by 2019, according to a December 2015 report “Hotel & Branded Residences Bali” by consultancy C9 Hotelworks and Horwath HTL, in a market that, like Jakarta, is suffering declining occupancy rates (below 70% at the end of the third quarter of 2015). Hotel activity beyond these two destinations, despite the government’s determination to create attractions “beyond Bali”, remain relatively limited and focused largely on cities in Java such as Yogyakarta and Solo.
Opening Up
Getting around the Indonesian archipelago, which sprawls across three time zones, has never been easy. There are also significant differences in the provision and quality of basics such as water and electricity between places such as Bali and Jakarta and the more remote parts of the country, particularly in the east. With its goal of raising tourist arrivals to 20m by 2020, the government has identified improving infrastructure as crucial to the strategy’s success.
A significant part of the government’s tourism plan is devoted to the construction of new airports and better roads, as well as modern ferry services. “The success of the “10 New Balis” – the areas identified for priority development in 2016 – depends on improving accessibility,” Dadang Rizki Ratman, deputy of destination development and tourism industry at the MoT, told OBG.
Investment in industries related to tourism is being encouraged, with regulations eased and new sources of financing being made available. The 2016 Negative Investment List, which lays out the areas that are open to foreign investment, opened passenger land transportation to outsiders for the first time, enabling foreigners to own up to 49% of a transport company. Foreigners can also own up to 100% of a business related to toll roads and control up to 67% of an airport services business. Investors from Indonesia’s ASEAN partners enjoy higher levels of ownership in both tourism and transport. In April 2016 the MoT also signed a preliminary agreement with the Financial Services Authority to allow non-bank financial institutions such as insurance companies and pension funds to invest in tourism businesses.
Infrastructure Upgrades
The Rp4.7trn ($343.1m) third terminal at Soekarno-Hatta International Airport in Jakarta, the country’s busiest aviation hub, opened in August 2016. National carrier Garuda Indonesia is the first customer, with all international flights due to move to the terminal by March 2017. Angkasa Pura II, the state-run operator that manages the airport, expects the new terminal, with its improved facilities including two hotels and 70,000 sq km of commercial space, to reduce overcrowding at Jakarta’s existing terminals. “We have to change the orientation of Jakarta as a transit city,” Budi Karya Sumadi, formerly president director of Angkasa Pura II, told The Jakarta Post. “We have to provide the best services, best facilities, on par with foreign airports.” Airport improvements are also under way in other parts of the archipelago, in the wake of a 2014 government commitment to build 165 airports across the country. Some 29 airports are set to be renovated to handle international traffic. Much of the work is expected to be undertaken in partnership with the private sector and awarded through public tender.
Indonesia’s major airlines are also trying to expand internationally. Garuda Indonesia, which was removed from the EU blacklist in 2009, is expanding again after returning to profitability in 2015. The national airline flies to 40 domestic and 36 international destinations (including codeshares), and carried 1m international passengers and 4.3m domestic passengers in the first three months of 2016. The carrier started new flights connecting Bali with the Chinese cities of Guangzhou and Shanghai, and also expanded operations to Europe and Saudi Arabia. In June 2016 it resumed direct flights between Singapore and the Sumatran city of Medan.
Lion Air, Indonesia’s biggest domestic carrier, aims to gain certification under the International Air Transport Association Operational Safety Audit by July 2016, which would enable it to expand internationally and provide reassurance to passengers flying in Indonesia itself. The EU removed Lion Air, its subsidiary Batik Air and Garuda’s subsidiary Citilink from the blacklist in June 2016.
Rail
Infrastructure improvements also include the country’s railways, with state funds focused on projects beyond Java, Indonesia’s most populous and developed island, including Manado and Papua. In Java, Japan has proposed improvements on the Jakarta-Surabaya railway which would double train speeds, while a rail link from Soekarno-Hatta to Halim, through Jakarta, is also on the drawing board. The planned high-speed line between Jakarta and Bandung in western Java, which was awarded to China and was due for completion in 2018, remains suspended amid disagreements over the concession terms and the proposed construction plan.
The government has also removed visa requirements for scores of countries, enabling tourists to spend up to 30 days in Indonesia without a visa if they arrive through one of 29 international airports, including Jakarta, Bali and Lombok, 88 sea ports or seven land borders. The first stage of the waiver took effect in September 2015. In lifting visa requirements, the government has not pursued reciprocal rights for Indonesians.
Visibility
In developing Indonesia’s tourism industry, the government is also stepping up its marketing efforts under the “Wonderful Indonesia” tagline, which was first rolled out in 2011 but was recently refreshed. In October 2015 the MoT appointed advertising company Ogilvy to promote Indonesia globally. “Wonderful Indonesia” was ranked 47th out of 144 destination campaigns by the WEF in 2015, up from 140th previously.
The budget for overseas promotions rose to Rp3trn ($219m) in 2016, up from Rp1.3trn ($94.9m) in 2015 and Rp400bn ($29.2m) in 2014. With the extra funding, Indonesia will expand its marketing campaign to 12 countries, up from five in 2015. Some 40% of the spending is targeted at digital promotions, as more travellers are using the internet to book their holidays, Yahya said. The increased spending will ensure the country is more visible in digital media, television, trade publications and at international exhibitions such as ITB Berlin. Indonesia will be represented at 300 events in 2016, up from 70 in 2015, officials told The Jakarta Post in January 2016.
Indonesia also plans to leverage on the “Visit ASEAN” marketing campaign in conjunction with the organisation’s 50th anniversary in 2017. The initiative focuses on major regional and long-haul markets including China, India and North America, and encourages people to visit at least two ASEAN countries. It is targeting 121m international arrivals in 2017 and tourism receipts of $83bn.
India
India is among the scores of countries that now enjoy the 30-day visa-free tourism facility. The MoT is targeting 350,000 arrivals from India in 2016, compared with 270,000 in 2015. By 2020 it hopes to welcome 500,000 Indian citizens, who are becoming more interested in overseas travel as incomes rise. In 2014 Indian tourists spent around $1140 during their Indonesian holidays, according to BPS (see analysis).
With the relatively small number of direct international flights to and from Indonesia, the country is also working closely with international airlines to open the country up to more visitors and highlight its attractions to the world. Garuda already offers a Wonderful Indonesia pass that allows travellers to fly on its domestic network for a small fee. In May 2016 the MoT agreed a deal with Singapore Airlines to support the Wonderful Indonesia campaign and promote travel to Indonesia through the airline’s Singapore hub. “Air transportation is a critical success factor for tourism in Indonesia,” Yahya said when the agreement was signed. “We have to cooperate with major airlines that have extensive worldwide networks.”
Niche Markets
In developing its tourism industry, Indonesia is aiming to build a reputation in niche areas such as meetings, incentives, conferences and exhibitions, Muslim-friendly travel, food, and marine and nature tourism. It is also trying to encourage international visitors to travel “beyond Bali” and visit destinations throughout the archipelago with its priority destinations.
Around 88% of Indonesia’s population is Muslim and it is the world’s most populous Muslim country. MasterCard-Crescent Rating estimates that there were 117m Muslim visitor arrivals globally in 2015, representing nearly 10% of the global travel market, and Indonesia wants to build a Muslim-friendly tourism industry that will encourage more people from the Middle East to visit the country. Yahya told The Jakarta Post that tourists from the UAE and Saudi Arabia spend between $1500 and $1700 each, compared to an estimated $1200 each spent by other foreign visitors. Indonesia was ranked fourth in the Global Muslim Travel Index 2016 (two places higher than in 2015), which was topped by Malaysia, and the country was rated highly for its Muslim-friendly services and visa-free regime.
Lombok
Lying just to the east of Bali, Lombok was named the best halal tourism and honeymoon destination in the 2015 World Halal Travel Awards, while Hotel Sofyan Betawi in Jakarta was the winner in the family-friendly category. In April 2016 the MoT signed an agreement with Emirates Airlines to commence direct flights from Dubai to Lombok, possibly in 2016.
While Jakarta remains primarily a business destination and gateway to the rest of the archipelago, the city is also diversifying its tourism offering by restoring the buildings in the once rundown old town, modernising its museums and seeking UNESCO World Heritage Status for the district. Meanwhile, Mandalika, on the island’s southern coast, has been designated a special economic zone as one of the 10 priority destinations outside Bali.
Top Priorities
The 10 priority areas will also open up more of the country’s diving and nature destinations to outsiders. The priority sites for development span the archipelago and consist of Lake Toba, Borobudur, Bromo, Thousand Islands, Mandalika, Wakatobi, Morotai, Belitung, Tanjung Lesung and Labuan Bajo.
The plans include five destinations that were once quite popular and will be revitalised (Lake Toba, Borobudur, Bromo, Thousand Islands and Mandalika). The remaining five areas, including popular diving spots Wakatobi and Morotai, are relatively new. Four of the 10 have also been designated as special economic zones, ensuring fiscal and non-fiscal incentives for investors.
Wakatobi in Sulawesi, Morotai in Maluku and Komodo in Nusa Tenggara offer the opportunity to dive among reefs and wrecks, and to see komodo dragons in their natural habitat. “Tourism has great potential,” Agnes Safford, co-founder of sustainability services firm GreenWorksAsia, told OBG. “The diving industry is a success story that should be used for replicating practices to other underdeveloped segments such as ecotourism, where the government can combine cultural promotion with culinary promotion.”
Marine tourism is likely to get an additional boost from the August 2015 decision to relax cabotage rules, which mean passengers on foreign cruise ships can now board and disembark at five Indonesian ports including Tanjung Priok in Jakarta and Makassar in Sulawesi. Previously, cruise ships could only dock at Benoa on Bali.
Outlook
The authorities have bold plans to develop the country’s tourism industry and encourage the millions who visit Indonesia each year to look at destinations beyond Bali. By 2019 tourism is expected to account for 15% of GDP and contribute the foreign exchange equivalent to Rp240trn ($17.5bn), according to Yahya. The government has shown its commitment to developing the infrastructure that should not only make it easier for visitors to travel around the archipelago, but also help improve the lives of Indonesians beyond Java and Bali. It has also moved to open up more areas of the industry to foreign investors.
It will take some time for Indonesia to reap the full benefits of its tourism strategy – possibly 20 years or more – but open for business and welcoming to the world, it now stands its best chance yet of becoming the global tourist destination.
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