I. Overview of Indonesia
The largest economy in Southeast Asia, Indonesia – a diverse archipelago nation of more than 300 ethnic groups – has charted impressive economic growth since overcoming the Asian financial crisis of the late 1990s.
Today, Indonesia is the world’s fourth most populous nation, the world’s 10th largest economy in terms of purchasing power parity, and a member of the G-20. An emerging lower middle-income country, Indonesia has made enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to 9.4% in 2019.
Indonesia mainly exports mineral products and animal grease.
II. 4 Business Opportunities Emerging in Indonesia
In Southeast Asia, Indonesia is known as one of the countries with the strongest economy. The country even ranks in the 16th place for the largest economy in the world. In the past ten years, Indonesia has experienced a steady growth of 5.8% GDP. Indonesia is projected to become the seventh strongest economy in the world by 2030. What kind of business sectors that are worth observing and exploring in Indonesia?
1. e-Commerce business
Indonesia’s e-Commerce scene is quite exciting to follow. Last year, with sales volumes reaching US$2.7 billion, the country’s online market transactions were the highest in Southeast Asia. In 2020, it’s projected that Indonesian e-Commerce market will be rallied close behind China and Indonesia with the estimation of US$1130 billion.
That’s why e-Commerce has become one of the promising business opportunities in Indonesia. Not to mention that more and more e-Commerce startups in Indonesia start to gain their fortune.
2. Traveling industry
As a nation of more than 17,000 islands across 34 provinces, Indonesia offers many options for traveling experience. In 2015, there were up to 10 million foreign tourists traveling to Indonesia, and the number keeps increasing over the years.
Besides, the Indonesian government has issued the visa-free regulation for foreign tourists from 169 countries. This has opened wide opportunities for travel industries to grow. The development of the tourism industry has become a lucrative business area, especially for foreign investors.
Manufacturing has become one of the major pillars of Indonesia’s economy and one of the most popular and promising business opportunities in Indonesia. Moreover, the Indonesian government has stated that they will provide support in terms of the permits, license, and even incentive provisions.
Since President Joko Widodo (Jokowi) took office in 2014, he has stated repeatedly that infrastructure development has become one of the things he prioritized. In 2018, the Indonesian government is said to spend IDR 404 million on various infrastructure projects, including bridges, roads, airports, and power plants throughout Indonesia.
With better physical infrastructures, this opens a huge opportunity for investors to take part in the development. Good infrastructure can lead to Indonesia’s economic development acceleration, which also serves as another strong reason why infrastructure becomes an emerging business opportunity in Indonesia.
III. Import Tariffs
Indonesia’s average most-favored-nation applied tariff is 6.9 percent. Indonesia periodically changes its applied rates and over the last five years has increased its applied tariff rates for a range of goods that compete with locally-manufactured products, including electronic products, electrical and non-electrical milling machines, chemicals, cosmetics, medicines, wine and spirits, iron wire and wire nails, and a range of agricultural products including milk products, animal and vegetable oils, fruit juices, coffee, and tea. Indonesia has a simple average bound tariff rate of 37 percent across products, which is much higher than its average applied tariff.
Most Indonesian tariffs on non-agricultural goods are bound at 40 percent, although tariff rates exceed 40 percent or remain unbound on automobiles, iron, steel, and some chemical products. In the agricultural sector, tariffs on more than 1,300 products have bindings at or above 40 percent. Tariffs on fresh potatoes, for instance, are bound at 50 percent, although the applied rate is 20 percent. The high bound tariff rates, combined with unexpected changes in applied rates, create uncertainty for foreign companies seeking to enter the Indonesian market.
In late 2016, Ministry of Finance issued regulation 182 of 2016, which levies a 7.5-percent charge on certain imported goods (known as “consignment goods”) shipped by business entities regardless of the tariff rate in Indonesia’s WTO and FTA schedules.
Indonesia has extensive preferential trade relationships with other countries. Under the ASEAN Free Trade Agreement, duties on imports from ASEAN countries generally range from zero percent to 5 percent, except for products specified on exclusion lists. Indonesia also provides preferential market access to Australia, China, Japan, Korea, India, Pakistan, and New Zealand under regional ASEAN agreements and to Japan under a bilateral agreement.
Indonesia is participating in negotiations for the Regional Comprehensive Economic Partnership, which includes the ten ASEAN members and six additional countries (Australia, China, India, Japan, Korea, and New Zealand).
IV. Import Duty Exemption
Import duty exemption shall be granted for the import of:
goods of foreign countries representatives and their officials who work in Indonesia under reciprocal principles;
goods for international bodies and their officials who work in Indonesia;
goods donated for public religious purposes, charity, social, cultural or for the relief of natural disaster purposes;
goods for museum, zoo and other similar public places and goods for conservation of natural resources;
goods for research and scientific purposes;
goods for the blinds and other disables;
weapon, ammunition, military and police equipment, including spare parts for the national defense and security
goods and materials used to produce goods for the purpose of national defense and security;
samples of no commercial value;
coffins or other containers containing corpses or ashes of corpses;
goods brought by passengers, crews of means of transport, border crossers, and consignments of a certain customs value and/or a certain quantity;
medicines imported on the Government budget for public purposes
goods that has been exported for purposes of repairment, processing, or testing;
goods that is re-imported in the same state as at the time of exportation;
human therapeutic substances, blood grouping, and tissue typing reagents.
V. Import Restrictions
Permission is granted to a registered importer, defined as a holder of an import registration number and a tax registration number approved and issued by the Department of Industry and Trade. Import licences are required for a wide range of goods and are issued by the Department of Industry and Trade.
Restricted and prohibited goods include:
explosives, including fireworks
arms and ammunitions
defined books and printed materials, audio and visual recording media
certain species of flora and fauna.
Some goods are exempt from import duty, including:
goods for representatives of foreign countries and international bodies and their officials who work in Indonesia
goods for research and scientific purposes
machinery for the establishment of industry.
Importers/custom brokers may release certain goods by using customs documents to obtain a rush-handling facility. Some goods for which the rush-handling facility can be used include:
human body organs
live animals and plants
time sensitive newspapers and magazines.
VI. Doing-business Notes
Since Indonesian market environment is complex and risky, it is necessary to conduct a full market research before expanding business in Indonesia so as to avoid risks.
Select dependent cooperative partners and agencies. Agency plays an important role in conducting commercial cooperation in Indonesia. While malicious fraud happens occasionally in some agencies. Therefore, enterprises should conduct an expansive research and select dependent agencies.
In addition, businessmen should pay attention to the quality of products and personal manners
Reference: 1. Chinese Ministry of Commerce Department of Outward Investment and Economic Cooperation
2. World Bank Group
3. Indonesia Investment Coordinating Board
4. International Trade Administration U.S. Department of Commerce
5. Directorate General of Customs and Excise
6. Australian Trade and Investment Commission