The Report: Indonesia 2024

Economy

Indonesia, with the world’s fourth-largest population and the 16th-largest economy, has seen considerable progress under President Joko Widodo, better known as President Jokowi, who has led the nation for a decade. His administration has driven substantial socio-economic advancement through extensive infrastructure improvements, regulatory reforms and a focus on enhancing the workforce. These efforts have attracted increased private and foreign investment and bolstered national productivity across key sectors such as manufacturing, mining, tourism, ICT and financial services, contributing to robust and consistent GDP growth.

At the same time, Indonesia faces ongoing challenges due to its diverse social and geographical landscape. As President Jokowi approaches the end of his term in 2024, the future economic trajectory will largely depend on the policies of his successor. Indonesia’s economy has demonstrated resilience amid global geopolitical and economic turbulence, reflecting the effectiveness of its infrastructure development and policy reforms. However, aligning regional authorities with central government goals and optimising the role of state-owned enterprises remain areas needing improvement. The smooth transition to the new administration, which is expected to maintain President Jokowi's strategic direction, is seen as promising for investors. Continued demographic growth and a proactive stance towards international business are anticipated to strengthen further the country’s economic outlook in the coming years.

This chapter contains interviews with Yukki Hanafi, Acting Chairman of the Indonesian Chamber of Commerce and Industry (KADIN); and Shinta Kamdani, Honorary Trustee of the Indonesia Business Council for Sustainable Development (IBCSD).

Trade & Investment

Indonesia has experienced strong trade surpluses and a rise in foreign direct investment in recent years, especially following the easing of Covid-19 disruptions. Since 2020 the country has implemented significant reforms in trade, investment, immigration, labour and real estate laws, making it more attractive to international businesses. Designated trade and investment zones have further boosted foreign interest. While fluctuating export receipts pose challenges, Indonesia's focus on expanding manufacturing and mining value chains should help stabilise export value as global commodity prices recover. The Regional Comprehensive Economic Partnership agreement has also enhanced Indonesia's access to global supply chains, further driving export and investment growth.

However, the upcoming government transition in October 2024 adds uncertainty, although initial voting results indicate a smooth shift. If the new administration continues its focus on foreign investment and economic development, Indonesia's economic growth is expected to remain strong. The country’s policy reforms and enhanced business environment position it well to capitalise on future opportunities. With steady leadership and a commitment to expanding key sectors, Indonesia is poised for continued economic expansion in the coming years, ensuring long-term stability and growth in trade and investment.

Banking

Indonesia’s banking sector is large, complex and profitable, driven by a population of nearly 280m people, the fourth largest in the world. However, a significant portion of the population remains unbanked or underbanked, creating socio-economic challenges. The lack of digital infrastructure, particularly in rural and remote areas, exacerbated these issues during the Covid-19 pandemic. In response, the Indonesian government has introduced a comprehensive reform package aimed at modernising and consolidating the financial services sector. Banks and lenders are increasingly leveraging the country’s thriving financial technology ecosystem to expand services, particularly in rural areas, where financial inclusion remains low. The development of rural banking is seen as essential for boosting financial inclusion and stimulating economic growth.

Despite the rise in digital solutions, only 28% of rural banks were cooperating with financial technology firms (fintechs) and commercial banks as of August 2023, highlighting a gap that needs to be addressed. Continued innovation and collaboration between traditional banks, fintechs and rural banking institutions are expected to create more financial options for underserved populations and micro, small and medium enterprises. These reforms are strengthening Indonesia's banking sector, positioning it to serve its diverse population and to be more resilient to internal and external economic shocks. This also presents attractive opportunities for private investors.

Digital Economy

Digital technologies play a crucial role in Indonesia’s burgeoning economy, driven by a competitive telecommunications sector and rapid growth in financial technology and e-commerce. The Covid-19 pandemic significantly accelerated the migration of business operations, education and social interactions online, highlighting the importance of digital infrastructure. Indonesia's young population and the government's emphasis on integrating digital skills into the education system offer substantial opportunities for further expansion in the digital economy. The government is also focused on modernising the economy by attracting increased private and foreign investment in advanced manufacturing, renewable energy and smart cities. However, achieving these goals requires addressing various regulatory, geographical and socio-economic challenges.

Amid these hurdles, Indonesia's government has been proactive in updating digital policies to enhance protections for consumers, businesses and investors. Issues such as high spectrum costs, uneven infrastructure distribution and low-quality service delivery in underserved areas need to be tackled. Nevertheless, these challenges present significant opportunities for growth and investment. Recent changes to the country’s business and investment laws are expected to create a more favourable environment for international investors, further bolstering the country's digital sector and overall economic development.

This chapter contains an interview with Kusumo Martanto, CEO and co-founder of Blibli.

Energy & Mineral Resources

Indonesia is among the world’s largest and fastest-growing energy consumers. While natural gas and oil production have declined over the past decade, coal production has surged to meet both domestic and export needs. Renewable energy, however, is on the rise. The 2022 energy transition plan and the 2023 green energy investment fund are set to accelerate renewable energy adoption through 2030. Indonesia's vast renewable potential, including the second-largest installed geothermal capacity globally, abundant solar energy and substantial hydropower resources, positions the country to play a key role in the global energy transition.

The Net Zero Emissions Roadmap aims to increase investment in these sectors, promoting a cleaner energy future. Additionally, Indonesia is well-positioned to capitalise on global demand for minerals like copper, nickel and cobalt, essential for renewable technologies. The mining, refining and export of these minerals are expected to boost economic growth and employment. Incoming President Prabowo Subianto has signalled his intention to continue Jokowi’s focus on industrial downstreaming in the mining sector, which would add value to Indonesia’s raw materials. This strategy could generate additional revenue that would help fund renewable energy projects. As Indonesia transitions toward green energy, its mineral wealth remains a crucial driver of economic growth and investment.

Industry

Indonesia is undertaking a major industrial transformation with the goal of becoming a significant regional centre for manufacturing and trade. Central to this initiative is the Making Indonesia 4.0 strategy, which aims to integrate Industry 4.0 technologies into the country’s production processes. This strategy is part of a broader effort by the government to diversify the economy away from its historical reliance on raw commodity exports and to enhance its investment climate. As part of this drive, the government is focusing on improving infrastructure and creating an environment conducive to foreign direct investment. The country offers a large and growing population with increasing purchasing power, which, coupled with tax incentives and the establishment of Special Economic Zones, presents substantial investment opportunities.

Although there are still infrastructure challenges to address, Indonesia’s commitment to adopting advanced manufacturing technologies and fostering an investor-friendly environment is expected to spur significant growth. With new leadership anticipated to continue these policies, Indonesia is well-positioned to advance its industrial capabilities and solidify its role as a major global economic player. The ongoing transformation reflects Indonesia’s determination to enhance its manufacturing sector and broaden its economic base, paving the way for further expansion and investment in the coming years.

This chapter contains an interview with Tommy Wattimena, CEO of Great Giant Foods.

Transport & Infrastructure

Indonesia, an archipelago with over 17,000 islands and a population of nearly 280m, relies on diverse passenger transport systems to drive connectivity and economic development. In recent years, the government has significantly boosted spending on transport and infrastructure, further supported by private investment through public-private partnerships. Historically, the transport sector has been car-dominated, with routes mainly centred around Jakarta. However, under the administration of President Joko Widodo, better known as President Jokowi, there has been a push to diversify transport options and enhance connectivity between major cities and rural areas.

Noteworthy projects include the development of a new capital, Nusantara, in East Kalimantan and the Jakarta-Bandung high-speed rail. The incoming government, led by President-elect Prabowo Subianto, who was elected in February 2024, is set to be inaugurated in this new city. These initiatives reflect a strategic long-term vision for transport development through 2030 and beyond. The expansion of road, rail, sea and air networks is expected to foster the growth of new economic corridors, improve rural connectivity and boost job opportunities. The construction of new ports is also anticipated to spur growth in trade and tourism, significantly contributing to the country’s overall economic progress.

Construction & Real Estate

Indonesia, as the largest economy in South-east Asia and the fourth-most-populous nation in the world, is experiencing a robust expansion in its construction and real estate sectors. The country’s ongoing urbanisation and favourable demographic trends are set to drive strong demand for residential and commercial properties, alongside leisure and recreational facilities. Significant government-led infrastructure projects, such as the construction of the new capital city, Nusantara and the Jakarta-Bandung high-speed rail, are expected to offer substantial opportunities for growth within the construction industry. Recent regulatory reforms, including the Job Creation Law, have been pivotal in attracting foreign investment into the real estate market, reflecting Indonesia's increased openness to international capital. Despite facing challenges such as high material costs and a dependence on imported goods, the sector's outlook remains optimistic. This positive trajectory is supported by a supportive regulatory framework and the government's commitment to ambitious infrastructure development plans, which are anticipated to drive continued growth and transformation in the construction and real estate sectors.

Tourism

Indonesia presents substantial potential as a tourist destination due to its diverse natural landscapes, including beautiful beaches, lush tropical forests, majestic mountains and expansive seas. Although the country has a well-established tourism industry, there remains considerable room for expansion. The administration of President Joko Widodo, better known as President Jokowi, who will conclude his second term in October 2024, has recognised this potential and is focusing on stimulating significant growth and investment in the tourism sector. Key initiatives include promoting Indonesia as a global travel destination, with special attention to niche markets such as large-scale events and sports tourism. Additionally, there is a concerted effort to diversify tourism beyond Bali, the country’s most frequented destination, by developing other regions and addressing infrastructure and amenity deficiencies. The government’s proactive approach involves easing visa processes, investing in infrastructure and enhancing marketing campaigns to attract more visitors. Committed to sustainable tourism practices, Indonesia aims to appeal to environmentally conscious travellers and preserve its cultural and natural attractions. Despite challenges like diversifying destinations and improving infrastructure, Indonesia’s long-term strategy is geared towards maintaining a trajectory of growth, expanding its international appeal and reinforcing tourism as a vital driver of economic development.

This chapter contains an interview with Shirley Tan, Vice Chairman of Rajawali Property Group.

Legal Framework

In line with national development and sustainability efforts, changes to Indonesia’s legal framework aim to enable green financing, facilitate land acquisition and management for international companies and outline the formation of public-private partnerships. Carbon and emissions trading, as well as the newly formed Land Bank Agency are set to influence the expansion and diversification of Indonesia’s economy in the coming years.

The update to Indonesia’s Job Creation Law aims to make it easier for businesses to operate by simplifying the process of getting licenses. This new regulation replaces older rules and introduces a system where businesses are categorised by the level of risk they pose. Based on this risk—low, medium, or high—different types of permits are required. Low-risk businesses only need a registration number, while high-risk businesses need government-issued permits and must meet strict standards. This new licensing system is meant to be more efficient and is handled electronically through the Online Single Submission platform. Companies need to provide detailed information about their business, including their activities, product types, number of workers and planned investment.

This chapter contains a viewpoint from Leonard Arpan Aritonang, Partner in LSM Law Firm.

The Guide

This section includes selected listings of Jakarta’s and Bali’s hotels, as well as helpful tips for business and leisure travellers planning to visit the country

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