Indonesia has significant potential as a tourist destination thanks to its diverse natural landscapes, which include beaches, tropical forests, mountains and seas. Although the country has a robust tourism industry, there is still further potential for growth in the sector. Recognising this, the administration of President Joko Widodo, better known as Jokowi – who will complete his second and final term in October 2024 – targeted the industry for substantial growth and investment. To this end, the government has undertaken initiatives to promote tourism in Indonesia and establish the country as a global destination, with a focus on developing niche segments, such as large-scale events and sports tourism.
There is also a growing emphasis on expanding the sector to a more diverse range of locations around Indonesia and reducing the pressure on Bali, the country’s most popular destination. The government is focusing on tackling infrastructure and amenity shortfalls in priority regions to aid in their development. If Indonesia can achieve these goals, tourism in the country could emerge as an even more important engine of economic growth.
Oversight & Policy
Established in April 2019, the Ministry of Tourism and Creative Economy (MTCE) oversees Indonesia’s tourism sector. The MTCE coordinates policy implementation with stakeholders and other ministries, particularly the Ministry of Public Works and Housing, with which it is working to develop the country’s tourist destinations. The MTCE’s policy priorities for 2024-25 are accelerated growth and sustainable development. Another important strategic body for the sector is the Ministry of National Development and Planning, which in 2022 created the Institutional Framework for Tourism Policy Development. This framework consists of three broad categories providing policy guidance to the MTCE. These are productivity, which includes upskilling and reskilling, and strengthening supply chains; inclusivity, which entails strengthening the creative economy’s infrastructure; and sustainability, which focuses on boosting service standards.
One of the main policy priorities of the government is its super priority tourism destination (DPSP) initiative, as more than 46% of the 9.5m international tourists who came to Indonesia in the first 10 months of 2023 visited Bali, according to Statistics Indonesia. Formerly known as the 10 New Balis when announced in 2016, the strategy was reconfigured during the Covid-19 pandemic to focus on five locations that Indonesia intends to promote as alternatives to the island. These are Lake Toba on Sumatra, Borobudur in Central Java, Mandalika on Lombok, Labuan Bajo in East Nusa Tenggara and Likupang in North Sulawesi. Although the government continues to regard Bali as integral to tourism, it has suffered from over-tourism in recent years, and there are many parts of Indonesia that have significant development potential (see analysis).
Sector Funding
Following President Jokowi’s directives, in July 2024 the government was working on formulating a presidential regulation to establish the Indonesia Quality Tourism Fund, with financing provided by the national budget, with no update at the time of publication. The aim of the fund, which is set to be managed by the Ministry of Finance, is to support the government’s goal of attracting more foreign visitors to the country. In particular, the fund is expected to be used to host international events at locations that have been designated as DPSPs, with approximately Rp2trn (US$130m) expected to be allocated to the fund in 2025.
In December 2023 Indonesia announced the eight strategic steps it planned to undertake to increase tourism flows and revenue. These include boosting spending by foreign and domestic tourists; accelerating the development of quality tourism in DPSPs; improving air connectivity; creating a more effective visa system for visitors; encouraging private investment in the DPSPs and environmentally friendly tourism initiatives; prioritising the integration of the licensing system for organising events in the meetings, incentives, conventions and exhibitions (MICE) segment; improving land connectivity and domestic air travel; and supporting digital promotions.
Performance & Size
Tourism has proven to be a major driver in the Indonesian economy’s post-pandemic recovery. It is a valuable industry for bringing in foreign exchange, attracting investment, stimulating infrastructure upgrades and creating jobs. According to the World Travel and Tourism Council (WTTC), the travel and tourism industry contributed more than Rp1trn ($65m), or 4.8%, to Indonesia’s GDP in 2023, representing a 29.5% increase from the previous year, although still 4.1% lower than the 2019 pre-pandemic figure of Rp1.05trn ($68.3m). The WTTC projects that the industry’s economic contribution will rise further, reaching Rp1.13trn ($73.5m), or 5.1% of GDP, in 2024 and Rp1.83trn ($119m), or 5.3% of GDP, by 2034. In terms of job creation, the sector supported 12.1m jobs in 2023, according to the WTTC – equivalent to 8.7% of Indonesia’s workforce. This represents a 4.7% increase from 2022, although it was still below the pre-pandemic 2019 level of nearly 12.4m. The WTTC projects that the number of people employed in travel and tourism will surpass 12.5m in 2024, accounting for 9% of total jobs, before rising further to 17.2m jobs – or 11.3% of the total employed workforce – by 2034.
Visitor expenditure figures reveal the growing importance of domestic tourists since the Covid-19 pandemic, with the country’s borders closed to international visitors for much of 2020 and 2021. According to the WTTC, in 2023 spending by domestic visitors reached Rp321.4trn ($20.9bn), representing a growth of 8.2% compared to 2022 and accounting for more than 57% of sector spending. The 2023 figure was also 2.4% higher than the total for pre-pandemic 2019. Meanwhile, expenditure by international visitors surpassed Rp238trn ($15.5bn) in 2023 – 121.2% higher than the previous year, but down 22.7% compared to 2019.
The WTTC projects domestic visitor spending to increase by 7.1% in 2024, then to demonstrate a compound annual growth rate (CAGR) of 4.8% through 2034 to reach nearly Rp552.7trn ($35.9bn). In comparison, international visitor spending is forecast to rise by 22.3% in 2024, then to grow at a CAGR of 7.6% to reach Rp603.9trn ($39.3bn) by 2034. In 2023 leisure tourists were responsible for 83.5% of total tourist expenditure in Indonesia, while business travelers accounted for the remaining 16.5%. In 2019 the split was 75.6% from leisure tourists and 24.4% from business travelers, indicating that the latter has yet to recover to pre-pandemic levels.
Boosting the performance of the sector is a key focus of the government, and several avenues for improvement are being pursued. The Institutional Framework for Tourism Policy Development features a drive to reskill and upskill businesses and stakeholders within the sector, with a particular focus on local communities, and micro, small and medium-sized enterprises in the fields of marketing, destination management and digital literacy. Infrastructure improvements to boost tourism are also underway, with upgrades to airports, roads and tourist facilities all on the agenda as the government aims to increase the country’s tourist capacity (see Transport chapter). The benefits of these endeavours are already evident. For example, the $7.3bn high-speed train connecting Jakarta and Bandung recorded more than 1m passengers in just over two months after launching in October 2023.
Visitor Numbers
In 2023 Indonesia’s foreign tourist arrivals totalled nearly 11.7m, surpassing the government’s goal of 8.5m and doubling the 2022 figure of 5.9m. However, visitor numbers have yet to recover to pre-pandemic levels, as Indonesia welcomed 16.1m foreign visitors in 2019. By nationality, in 2023 Malaysians accounted for the largest share of international tourists (18.5%), making it the number one foreign source market for Indonesia in terms of arrivals. Other leading source markets included Singapore (16.4%) and Australia (11.9%). The 2023 target of 4.5m visitors for Bali had almost been reached by October, and the final number of arrivals on the island for the year was approximately 5.3m. To address concerns related to over-tourism on the island, in February 2024 Bali began to levy a tax on all international visitors.
Having made the sector a priority in its economic agenda, in 2024 the outgoing administration of President Jokowi is hoping that tourism will deliver significant growth. Among its goals, in February 2024 the MTCE announced that it had raised its international arrivals target for 2024 from 14m to 17m on the back of the positive performance in 2023. There is an expectation that improved aviation infrastructure and flight routes will be contributing factors. In the first quarter of 2024 foreign arrivals stood at roughly 3m, up by more than 25% compared to the same period in 2023. During the first five months of 2024 Indonesia welcomed a total of 5.2m international tourists, its highest figure for this period since before the pandemic. May 2024 alone saw more than 1.1m foreign tourists, representing a 20.1% year-on-year increase. Malaysia (17.5%), Australia (12%) and Singapore (9.7%) were the top overseas source markets for that month. However, when considering the MTCE’s visitor target for the year, these figures are below expectations.
Indonesia’s large population features an expanding middle class that has greater spending power due to higher disposable income. This, combined with upgrades to the country’s infrastructure and the impact of local tourism promotion efforts during the pandemic, has led to a boost in domestic tourism. In 2024 the WTTC projects spending by such visitors to reach Rp344trn ($22.4bn).
Hotels
The number of hotels in Indonesia has fluctuated in recent years due to the disruption of the pandemic, which severely impacted operations and led to the permanent closure of some establishments. From a peak of more than 30,800 hotels in 2020, the number fell to over 27,600 in 2021 before recovering to 28,800 in 2022 and 29,000 in 2023. While the number of classified hotels in Indonesia exceeded pre-pandemic levels by 2023, the number of non-classified hotels was below pre-pandemic levels that year, indicating that small, independent hotels have struggled to recover.
In terms of location, the highest number of hotels in 2023 could be found in Bali, with 3900; East Java, with 3780; West Java, with 3120; Central Java, with 2020; and the special administrative region of Yogyakarta on Java, with 1820. Away from Java and Bali, the highest number of hotels were in North Sumatra, with 1350, which is home to Lake Toba. Three of the regions hosting DPSPs had relatively limited hotel capacity in 2023, with West Nusa Tenggara, East Nusa Tenggara and North Sulawesi home to roughly 890, 610 and 270 establishments, respectively.
Hotels play a crucial role in tourism that goes beyond accommodation. Some hotels operate in tandem with local tour operators and are highly integrated with the wider sector, offering curated experiences that provide deeper insights into local communities and culture. In addition, as part of their efforts to improve the guest experience, many hotels have embraced advanced technologies, including digital booking systems and smart room amenities. Eco-tourism has become a priority in Indonesia – as result, some hotels are adopting operations and technologies that align with a sustainability mindset and appeal to environmentally conscious tourists. Energy efficiency and waste management practices are also targeted in this regard.
Regional Investment
Hotel funding in the Asia-Pacific region slowed down in 2023, but Indonesia bucked the regional trend and continued to show growth, with new hotels being developed in both established and emerging tourist destinations. In line with an anticipated increase in tourist numbers in 2024, investment in hotels is expected to follow this pattern, with estimates having such funding as reaching $220m in 2023 and $174m in 2022. Investment of $265m is projected for 2024, with luxury hotels being the most popular segment for expansion, and Jakarta and Bali among the key destinations. In addition, ongoing infrastructure upgrades are expected to expand the scope for further developments, such as through the opening of new toll roads that will help boost connectivity to smaller cities and towns throughout the country.
According to Indian research firm Mordor Intelligence, Indonesia’s hospitality real estate market is projected to reach more than $1.8bn in 2024 and roughly $3.3bn by 2029, with a CAGR of more than Other France UK US South Korea India Timor-Leste China Singapore Australia Malaysia 12% during this period. In a move that could further boost private investment in Indonesia, in March 2024 Prabowo Subianto, the incoming president, indicated that he wants state-owned enterprises (SOEs) to divest from the hotel segment, as SOEs currently own 23 such establishments.
MICE Segment
Indonesia actively promotes this segment, a sub-sector of tourism that caters to generally affluent groups of visitors that are often engaged in business-related activities. The MICE market in Indonesia was valued by Indian data analysis firm Astute Analytica at $2.3bn in 2023 and forecast to reach about $7.4bn by 2032, with a CAGR of 13.8% between 2024 and 2032. Indonesia boasts new convention centres, modern venues and cultural experiences that make the country a particularly attractive destination for domestic and international companies and visitors.
In addition to various upgrades to transport networks, the expansion of Indonesia’s airports and the number of its convention centres have improved accessibility and increased accommodation options. Examples of the country’s event capacity include the G20 Summit held in Bali in November 2022, and the 43rd ASEAN Summit that took place in Jakarta in September 2023. Large-scale events such as these are crucial to boosting the performance of the tourism industry, as they provide an injection of economic activity in related service industries.
However, the MICE segment faces a number of challenges. For one, the majority of events are concentrated in specific periods, creating an imbalance between peak and off-peak seasons. In addition, although the government is pursuing its DPSP initiative, the number of destinations that can host events is limited, with most taking place on Bali or in Jakarta. The government is seeking to promote other destinations in the country to businesses and event organisers by upgrading existing infrastructure and expanding local accommodation options.
Among the places that could become established international MICE destinations are Labuan Bajo in East Nusa Tenggara, which hosted the 42nd ASEAN Summit in May 2023, and has also benefited from new conference centres and high-end hotels in recent years; Yogyakarta on Java, which hosted the ASEAN Tourism Forum in February 2023; and Padang in West Sumatra, which is likewise equipped for international events, having hosted the World Islamic Entrepreneur Summit in September 2023.
Visas & Permits
As part of its efforts to stimulate growth in the industry, Indonesia has streamlined regulations, eased visa processes and invested in infrastructure. For example, moves to digitalise the licensing process for event organisers have significantly reduced the number of documents that are required for submission. In July 2024 Sandiaga Uno, Indonesia’s MTCE minister, announced that the country was planning to make travel visa-free for citizens of 20 different countries, including Australia, China, France, Germany, Japan, the UK and the US.
Sports Tourism
Indonesia’s landscapes and natural features make it an attractive destination for outdoor activities and sporting events. The country offers a wide range of locations and pursuits in the fields of marine-, mountain- and land-based sports tourism. Large numbers of visitors are attracted to Indonesia for health and wellness experiences, and surfing, golf, mountaineering and diving are also among the various outdoor activities on offer throughout the country. German data analytics firm Statista forecasts revenue from the sports events market to reach $154.7m in 2024, and to record a CAGR of 2.64% between 2024 and 2028.
There is potential for the country’s hosting of international sports events to provide a significant boost to the tourism industry. Since 2022 Indonesia has hosted MotoGP Indonesia, an annual motorcycle race at the Mandalika International Circuit race track on the island of Lombok in West Nusa Tenggara. In 2023 Indonesia co-hosted the FIBA Basketball World Cup along with Japan and the Philippines, as well as hosting the FIFA U-17 World Cup.
However, the sector has not realised its full potential yet and has experienced setbacks, with some major events cancelled. In August 2023 Bali was set to host the World Beach Games, but Indonesia cancelled the event due to a budget shortage. In March 2023 FIFA removed the country as the host of the FIFA U-20 World Cup in Bali that same year, moving the tournament to Argentina. The MTCE estimated that the cancellation of the World Beach Games resulted in $13.5m in lost revenue. Despite these setbacks, the government is committed to the further development of the sports tourism segment, and has been focused on providing new venues, training facilities and other events-related infrastructure. As such, there is scope for Indonesia’s appeal as a destination for such activities to grow, and for its economic contribution to become increasingly valuable in the coming years.
Outlook
The tourism industry is poised for growth, and is likely to be an increasingly integral component of economic development. The government has been proactive in nurturing the sector and attracting visitors, implementing initiatives such as easing visa processes, investing in infrastructure and boosting marketing campaigns.
Indonesia has also committed to sustainable tourism practices as a means to appeal to environmentally conscious travellers, as well as to preserve the country’s cultural and natural attractions. Challenges remain – including the diversification of destinations around the country, and the provision of supportive infrastructure and amenities – but there is a long-term strategy in place to keep the country on its current trajectory of growth and expand its international appeal as a leading travel destination.
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