Business and Market Overview on Indonesia


ECONOMY. Indonesia is a market-based economy but the government plays a significant role in the country’s economy with 160 government-owned enterprises. Indonesia’s GDP per capita ranks fifth after Singapore, Brunei, Malaysia and Thailand. The Asian economic crisis of 1997 adversely affected the country economy and businesses and caused spiralling prices of necessities resulting in social unrest. Future prospects of Indonesia’s economy are bright with economic structural reforms in placed since the Asian economic crisis.

Indonesia’s GDP was US$258.3 billion with a GDP per capita of US$1,193 in 2004. Indonesia’s real GDP grew at an average of 4.6% annually from 2000 to 2004 driven by domestic consumption accounting for nearly three-quarters of Indonesia’s GDP. Inflation rose from 3.8% in 2000 to 11.9% in 2002 but eventually declined to 6.1% by 2004. GDP per capita increased from US$801 in 2000 to US$1,193 in 2004 but unemployment also increased from 6.1% to 9.9% during the period.

The manufacturing sector contributed towards 43.7% of Indonesia’s GDP in 2004 while the service sector contributed 40.9%. Though nearly 45.0% of the country’s workforce is involved in agriculture, this sector contributed only 15.4% of the country’s GDP during the period. Major industries include petroleum and natural gas, textiles, apparel, footwear, mining, cement, chemical fertilisers, plywood, rubber, food and tourism. Major agriculture products include rice, palm oil, rubber, cacao, peanuts, copra and cloves.

DEMOGRAPHY. Indonesia comprises nearly 18,000 islands and has the largest population among the Southeast Asian countries with 217 million people in 2004. Main islands are Java accounting for 55% of the population followed by Sumatra (18%), Kalimatan (5%) and Sulawesi (6%). Other less populated islands include Irian Jaya, Bali and Nusa Tenggara.

Indonesia is a country of diverse ethnic and sub-ethnic communities with different languages and dialects, cultures and foods. The Javanese accounts for 45% of the population followed by Sundanese (14%) and Madurese (8%) and coastal Malays (8%). Chinese who migrated to Indonesia during the Dutch colonial period account for nearly 5% of the population. Islam is the predominant religion followed by Christianity and minority religions include Buddhism and Hinduism. The national language is Bahasa Indonesia (similar to Malay used in Malaysia, Singapore and Brunei). English is not widely used but many businesses and government officials dealing with foreign companies and foreigners are fluent in the language.

More than half of the population live in the rural areas but the proportion of the urban population is increasing from 36.0% in 1995 to 45.0% by 2004. Major cities include Jakarta with a population of 10 million followed by Surabaya, Bandung, Semarang, Yogyakarta, Surakarta, Medan and Padang.
Nearly 25% of the population live below the poverty level while another 60% are from the lower income group. The remaining 10% belong to the middle income and 5% in the higher income group. Though Indonesia has a relatively small proportion of middle to high-income consumers, this equates to nearly 33 million consumers. This is more than Singapore’s 4.3 million population with a GDP per capita on par with many advanced economies of the European Union.

INFRASTRUCTURE. Indonesia’s domestic telecommunication system is generally fair while its international services can be categorised as good. Internet broadband services are mainly concentrated in the major cities. Road systems are more developed on Indonesia’s populated island of Java, fairly developed in Sumatra and Sulawesi but poorly developed on the island of Kalimantan. Besides sea ports serving the international shipping lines, Indonesia are also served by smaller sea ports serving coastal shipping. All the cities and major towns are connected by airline services.

INTERNATIONAL TRADE. Indonesia’s major trading partners include Japan, US, Singapore, South Korea and China. Much of the imports from Singapore are Singapore’s re-exports from other countries and exports to Singapore are re-exported to other countries. Main exports from Indonesia include oil and gas, electrical appliances, plywood, textiles and rubber products. Main imports include machineries and equipments, transport equipments, chemicals, fuels and foods.

CONSUMER USAGE OF TECHNOLOGY. Mobile phone penetration is just 13% of the populations, which is lower than Singapore (93%), Malaysia (67%) and Thailand (45%). Furthermore, there are only 10 million fixed-line telephones serving the whole country. The penetration of computers is less than 2% of the households and the country has only 1.2 million internet subscribers with an estimated 12 million internet users i.e. a penetration of only 0.5% of the population. Most middle and high-income homes would own televisions but the penetration in lower income homes is lower. Thus the household penetration of television in Java is nearly 60% and in Sumatra 52%. Similar scenario exists for refrigerators.

RETAIL MARKET. Retail sales of food and non-food items totalled an estimated US$32 billion in 2004. Many Indonesians still shop at the traditional markets or “mom and pop” establishments but shopping at modern shopping malls, hypermarkets, supermarkets, mini-markets and supermarkets is increasingly popular. There are nearly 5,000 such modern establishments in Indonesia accounting US$4.5 billion in retail sales in 2004. Most of these establishments are concentrated on the island of Java followed by Sumatra. Since 1998, the government opened the retail industry to foreign investments and participation.

FOOD CULTURE. Indonesia’s food culture is diverse because of the various ethnic and sub-ethnic communities that comprise the country’s population. Typical meals eaten are rice-based dishes and occasionally noodles. However, there are many western franchise fast food outlets located mainly in the major cities such as Jakarta, Surabaya, Bandung, Semarang and Yogyakarta. Mid to high-end bakery outlets serving western and local bakeries are also found in the major cities.

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