- Business Relationships
- Foreign direct investment
- FTAs and Treaties
- Development Cooperation
- Prospective fields of study (MOP)
Trade relations with the EU
|Exports from the EU (million EUR)||9,264.80||8,900.80||9,408.50||7,258.10||8,016.20|
|Imports into the EU (million EUR)||15,205.50||14,999.50||14,368.50||13,292.00||16,741.20|
|Balance with the EU (million EUR)||5,940.7||6,098.7||4,960.0||6,033.9||8,725.0|
Source: European Commission
While Indonesia mainly exports commodities to the EU, dominant among them palm oil, the export of which increased by 9% last year, EU countries concentrate on exports with higher added value – especially machinery and vehicles, then goods of the processing industry, chemical substances and finally foodstuffs. Negotiations on the CEPA comprehensive trade agreement between the EU and the IDN are still ongoing, since 2014. It is this agreement that is supposed to help increase the volume of EU exports to the region and, as a result, increase Indonesia’s GDP by 0.2%.
- Allcountrylist: Overview of major industries in Indonesia, including mining, construction, transportation, tourism, and foreign trade.
Trade relations with the Czech Republic
|Exports from the Czech Republic (billion CZK)||9.3||2.9||4.7||4.4||ON|
|Imports to the Czech Republic (billion CZK)||3||7.5||8.3||8.7||ON|
|Balance with the Czech Republic (billion CZK)||-7||4.5||3.6||4.3||ON|
Trade exchange between the Czech Republic and the IDN has been growing in recent years, but it still remains in favor of Indonesia. The statistics for the year 2021 are not yet complete, but traditionally, the distortion of the statistics due to unaccounted re-exports from Singapore must be taken into account. The export commodity structure is dominated by machinery, chemical elements and weapons and ammunition worth CZK 65 million. The dominant imports from Indonesia last year were electrical appliances, rubber products, footwear and textiles, and fuels and oils worth CZK 902 million.
Trade relations with countries outside the EU
Comment on the numbers in the table, the reasons for the positive or negative balance, comparison with the EU and what causes the differences.
|Exports from countries outside the EU (million EUR)||134,239.3||144 109.8||133 122.2||131,503.2||188,778.4|
|Imports to countries outside the EU (million EUR)||118,232.2||145 405.1||131,216.0||107,041.4||150,020.2|
|Balance with non-EU countries (million EUR)||16,007.1||-1,295.3||1,906.2||24,461.8||38,758.1|
Source: EIU, Eurostat
While trade with the US was only $30 billion, China is still the dominant trading partner with nearly $86 billion in trade and growing. Cooperation with the PRC is not limited to the import of cheap products, low-quality infrastructure projects, but often includes products of higher quality. It can be seen that the cooperation is deepening and the diplomatic missions agreed to establish 4 economic corridors in North Sumatra, North Kalimantan, Bali and North Sulawesi. BKPM is set to propose 28 projects worth more than US$90 billion to Chinese firms under its Belt and Road Initiative. The projects concern the development sector, the construction of new ports, power plants, the development of enamel works, but also the development of tourist zones. Indonesia’s pragmatism in terms of economic growth and demand for FDI is therefore obvious. IDN actively trades with other ASEAN countries, mainly due to the existence of a number of agreements on free or preferential treatment. Customs tariffs within this region do not exceed 5%, and are interesting for Indonesian exporters.
Foreign direct investment
Indonesia is not a traditional recipient of foreign investment due to a rather restrictive investment policy in the long term. This logic took a turn with the release of the so-called Omnibus Law, which, among other things, established the so-called Positive Investment List. Based on it, a number of sectors are opened to foreign investors with the possibility of 100% ownership. Paradoxically, during the corona crisis at the turn of 2020 and 2021, there was a sharp increase in FDI by 10%. The biggest investors in the country are mainly Singapore, then Hong Kong, and China, as well as Japan. Outside the region, the USA is a significant contributor, and the dominant European investors are the Dutch. The standard minimum capital input requirement of IDR 10 billion (US$700,000) remained in place under the Summary Law. In general, every foreign investor must therefore capitalize the company with at least this amount and pay back 25% at the time of establishment. Indonesia offers dozens of special economic zones, where traditional investment incentives can then be drawn, mostly depending mainly on the number of jobs created. The purpose of the sudden turnaround from the restrictive investment environment was, of course, an effort to start economic growth, but also to capitalize on China’s economic problems in connection with the corona crisis, where many investors were forced to close their businesses and especially factories. However, to the displeasure of Indonesia, their delocalization was directed to areas that are traditionally set up as investors, i.e., for example, to Vietnam.
Investments by EU member states have been steadily increasing over the years. In 2019, the volume of FDI amounted to EUR 2billion, which corresponds to a 40% increase compared to 2013. The EU is thus the main investor outside the Asian region in Indonesia. And companies from European member states choose Indonesia for their investments right after Singapore. Almost 9% of all EU investments in the ASEAN region are thus allocated to Indonesia. Here, European companies mainly focus on products with high added value in the chemical and pharmaceutical industries, transport, logistics warehouses, communication technologies, as well as in the infrastructure and mining sectors. Of the thousands of specific projects, we can name, for example, Nokia, Veoia, Allianz, Siemens, Saint-Gobain, Repsol, Oriflame, Ericsson, Lenzing group, Rotarex, Indra or Ewindo. Czech investments include a branch of the non-bank loan provider Home Credit and a joint venture in the defense field between Excalibur Int. and PT Pindad.
FTAs and treaties
Treaties with the EU
- In the PCA region – Agreement on partnership and cooperation (trade, environment, energy, education, science and technology, migration and CT) 2014
- Missing: CEPA (under negotiation since 2014) – the potential to increase EU exports by USD billion vs. likely drop in turnover compared to exports of neighboring countries
Contracts with the Czech Republic
- Double Taxation Agreement 1996
- Agreement on the Promotion and Protection of Investments 1991
- Agreement on Economic Cooperation 2008
- Environment LoI 2021
- MoU in the field of mining and energy under negotiation: 2nd round
- MoU in transport: 1st round
Indonesia is significantly involved in a number of trade agreements within the region and continues to be involved in access to the so-called mega-agreements in the trade area, CPTPP and RCEP.
Indonesia is an occasional recipient of Czech development and humanitarian aid. Indonesia is not among the priority or project countries of Czech development aid, which limits the implementation of activities in the given area. Following the devastating disasters in 2018 on Lombok and Sulawesi, projects with the support of Czech humanitarian aid aimed at rebuilding schools on Lombok and developing community health centers on Sulawesi took place in 2019. In 2019, a small local development aid project aimed at supporting farmers and an environmentally sustainable approach to nature and landscape was implemented in the North Sumatra region. The launch of development B2B projects of the Czech Development Agency is thus a welcome innovationin 2016, which is of great interest in connection with Indonesia. Furthermore, technical cooperation projects are ongoing in the country at the inter-ministerial level, and cooperation between zoological gardens and in the academic as well as in the school sphere is also developed here. Despite the fact that it is the largest economy in the region, Indonesia is still classified as a developing country with large social disparities, and its poverty rate has also increased again, surpassing the 10% mark, as a result of the pandemic years.
The total EU support through Team Europe Initiative projects amounts to over EUR 200 million. Interest in the development and stable growth of the region is constantly increasing, which is also evidenced by the new presence of the EIB with a budget of EUR 500 million. The main themes of the projects then reflect traditional European values and SDG goals, in Indonesia especially green renewal and strengthening of democratic civil society.
Prospective fields of study (MOP)
From the description of an enormously large market with a relatively high purchasing power of consumers, Indonesia naturally offers a whole constellation of opportunities in various fields. Its economic model is still largely based on the export of commodities, the processing of which in the country and the transition to the export of products with a higher added value, however, is very important to the current government and is thus beginning to liberalize the investment environment. The economy of the next decade, as proposed by many, poses typical obstacles from the conditions of local integration, to national standards, to the mechanism of commodity balance, on the one hand. On the other hand, from 2021 the government is introducing the so-called Positive Investment List , when dozens of industries were re-opened for foreign investment entry. The basic principle is primary openness to foreign investment, under certain conditions defined by priorities. 3 categories of investment areas are newly distinguished:
Priority 1: strategic sectors that are capital-intensive and R&D-oriented as well as innovative technologies, i.e. – RES, shipping, oil industry, metalworking industry and other 245 areas open for FDI 2.
Priority 2: SMEs (def. as a business with a turnover of up to Rp. 10 billion, family-run, with a high proportion of human labor and cultural heritage) – BKPM and the Ministry of SMEs, with the help of various incentives, support these for official registration in the commercial register, and further partnerships with larger firms that can capitalize them, it covers 51 areas
Priority 3: industries with exclusively domestic capital usually reserved for cooperatives and SMEs – traditional cosmetics, fishing, etc. altogether 112 areas
For net exports, we have identified the following sectors for the year 2022, the details of which you can read in the Industry Opportunities Map.
Transport industry and infrastructure
The country’s transport infrastructure requires extensive modernization in practically all areas – land, rail, airport and urban transport. The rising standard of living and the demographic boom have shown the capacity under-dimensioning of Indonesia’s infrastructure. Persistently unsatisfactory air quality and Indonesia’s climate commitments lead the government to invest in electromobility. Building infrastructure and improving transport connectivity – land, air and sea within the region – is one of President Jokowi’s top priorities. The program includes everything from the renewal and modernization of railways and rolling stock to the strengthening of public transport in metropolitan areas. So far, Jakarta is the furthest along in this regard with its historic first metro line, while work on the second line is currently underway. A follow-on suburban elevated rail service known as the LRT was also introduced. Railway transport in particular will continue to offer great opportunities. According to the development plan, 10,524 km of railway connections should be built by 2030, including 3,755 km of urban railway connections. Electromobility is a new priority under the government’s investment program known as the Positive Investment List. The Indonesian government thus intends to create a production hub in the country with a capacity of up to 600,000 electric cars and million electric motorcycles in the 2030 horizon.
Indonesia is under strong pressure from the international community to meet its climate commitments and reduce the use of coal-fired power plants, which still make up 60% of the energy mix. The government’s energy transition plan thus aims to ensure up to 29% of energy consumption from renewable sources in the horizon of 2030. The promising potential of solar, water, wind, as well as massive geothermal and biomass resources are still underutilized. Despite the COVID-19 pandemic, the Indonesian economy is experiencing relatively rapid growth, i.e. an increasing GDP per capita, and this, moreover, with a rising demographic curve. These two facts present a challenge in the form of high energy consumption to the largest economy in Southeast Asia. Electricity consumption is estimated to triple between 2015 and 2030 as a result of economic development and urbanization, while energy consumption will generally increase by 80%. Indonesia’s energy mix is dominated by fossil fuels (coal, oil, gas), while renewable energy sources occupy only 11.3%.
Indonesia’s defense industry is booming amid growing geostrategic tensions. The budget for 2022 is USD 9.3 billion, making it the second largest in the region. The government is aware of the relative backwardness of the army’s armaments compared to some of its neighbours, and is addressing this problem with its Minimum Essential Force Strategy. In its acquisitions, the Indonesian Ministry of Defense will focus mainly on naval and aviation equipment, and generally strengthening material reserves.
Healthcare and pharmaceutical industry
In the last decade, the Indonesian healthcare industry has been undergoing development, but it is still not enough to cover the needs of a growing population with higher demands. The vast majority, 63% of hospital facilities are private, and the Indonesian government will try to meet this competition with plans to build state facilities. The COVID-19 pandemic has shown deficiencies in the equipment and availability of both medical aids and some medicines and medicinal substances.
Water management and waste industry
Indonesia, like many developing countries, struggles with insufficient capacities in the area of waste treatment. According to surveys, it is the second largest polluter of the seas, and the volume of plastic waste annually rises to 7 million tons of waste, of which only 10% is recycled. While business licenses for waste treatment are issued without higher requirements for recycling waste, leaving most of it in landfills, Indonesia is coasting to 2022, when it holds the presidency of the G20 group with green slogans.
Indonesia has joined the ASEAN countries that have ratified the regional Digital Trade Agreement. The Indonesian government hopes for greater competitiveness and more revenue from digital transactions. Digitization will also significantly affect B2B trade. Indonesia’s 4 million traditional grocery stores are likely to move to digital platforms that will help them withstand growing competition. Indeed, the World Trade Organization predicts a favorable growth of trade exchange for Asian markets at the rate of 0.3% in the pandemic year 2020, which will gradually increase to 8 to 9% in the coming years.