7 PROMISING BUSINESS SECTORS IN INDONESIA

https://www.linkedin.com/pulse/5-promising-business-sectors-indonesia-2018-herpiani-ng

The country’s population growth is estimated to reach a record 1.2% per year with the majority of its productive workforce are millennials thus putting Indonesia on the list of the top 5 Asian countries for investment destination. The Indonesian economic growth is set to 5.4% for 2018 a bit higher from the 5.1% in 2017.

Indonesia, as one of the world’s most populated countries on this planet earth, is living a dynamic life in many aspects. Trends are frequently changing so fast that we have to cope with the changes from time to time. The huge population with the increased number of more skilled millennials with increasing purchasing power and the rapidly changing lifestyle and technological trends are two facts that people in Indonesia are great consumers of services and products.

To tap into the business opportunities that the changes bring, there are at least 7 sectors to be seriously promoted by the government and profitably explored by the investors in order to meet the expectations of every stakeholder, especially the consumers.

Investing in Indonesia will still remain a promising yet challenging venture for the investors and will mean more work to do on the government's side. The latter plays a very vital role in the attraction of investment and influx of investment funds into Indonesia.

Simplified regulations, speedy license and permit acquisition, a variety of attractive incentive programs and fast services from the government to the public amongst are the success factors for the country to attract more potential investors to finance business in the country.
And the government has now done much of the above in terms of deregulations and license & permit simplification and incentive programs --- as I mentioned my previous articles--- that have contributed to the country’s recent success of attracting more and more investors to invest funds in Indonesia.

Following are the 7 promising sectors of business worth observing and exploring in Indonesia in 2018:

#1 Mining and Energy Industry
Together with manufacturing sectors, mining and energy industry is the sector that currently contributes most to Indonesia's annual GDP growth.
Believed as a powerhouse in the area of mineral production, Indonesia’s mining sector has long served as a key pillar of economic expansion and mining is acting as a significant contributor to the country’s GDP. The country’s substantial mineral and coal reserves remain attractive assets to investors to explore, now and then.
In order to further monetize these resources and create more viable investment opportunities, the government of Indonesia (GOI) has been deregulating and simplifying licenses, permits including providing specific tax incentives to investors (revisit my previous article” Why Invest in Indonesia?”).

Indonesian coal producers have been enjoying the global trend of increasing coal prices throughout 2017.The Newcastle coal price has recovered from its lowest point in the middle of 2016 and surpassed US$70 per ton again during 2017. The lowest price last year is higher than the lowest price in 2016 when it reached $48.80 per ton. Coal price in 2018 is forecasted to remain stable throughout the year.

As for the energy or power sector, the new RUPTL sets Indonesian economic growth assumption at 6.2% (recently corrected by the government to be lower than 6% for 2018) with electricity demand being projected to grow by an average of 8.3% per year during the period of 2017-2026.

Until 2026 the government’s PLN (State-owned Electricity Company) together with private investors is expected to build a total of 77.8 GW of power generations; 67,000 kilometers of transmission network; 464 kilometers of distribution networks and a total of 222,000 MVA of substation transformers across the Indonesian archipelago.

#2 Infrastructure

Available infrastructure in Indonesia is still not capable of measuring up to an ideal modern life expectation in the country. This condition, however, sends a good signal to potential investors to invest their money in the sector. The government is highly committed to improving basic yet modern facilities throughout the country, especially for the eastern part of Indonesia such as South Kalimantan (Banjarmasin) and Central Kalimantan (Palangkaraya) provinces.
Apart from the private sector’s sources to invest in infrastructures, the Government of Indonesia alone is said to have planned to spend IDR 404 trillion on infrastructure projects in 2018.
Toll roads, bridges, airports, ports, and power plants are among the top priority projects of the government which some have been commissioned and used with the remaining ones being planned, designed and constructed.

Infrastructure development---as long as the fund is available--- is relatively easy to do in Indonesia since the country has a great number of land areas especially in the east of Indonesia such as Kalimantan and Sulawesi, just to mention a few. Action in the improvement of the infrastructure by the government can be reciprocated by the investors as they would in turn likely be interested to invest funds in the other sectors and open more opportunities in the country. 

Good infrastructure is of paramount importance to Indonesia’s economic development acceleration as well as attracting investors. Investors are more inclined to invest in a country with better physical infrastructures e.g. roads, bridges, buildings, dams, ports and so forth.

#3 Manufacturing

The industrial sector is the sector that currently contributes most to Indonesia's annual GDP growth. The two most important sub-sectors of industrial sector are mining and manufacturing, both being major pillars of the nation's economy since the 1970s, thus having been engines of economic change and development since the Suharto's New Order regime till today, 2018. Although the manufacturing sub-sector has lost its momentum after the Asian Crisis of the late 1990s, it still constitutes the most popular sub-sector of Indonesia in terms of foreign direct investment (FDI), followed by the mining sub-sector.
10 economic development acceleration programs announced in 2015 makes very clear that package 7 of the programs spell out that manufacturing is one of the strategic sector that government will support in terms of the license, permits, and incentive provisions, especially on tax deduction and other obligation exemption.

#4 Consulting and Advisory Services

Management consulting is a $250 billion industry. It's huge. It's promising. It's growing. It's highly profitable. Due to the very pressing requirements for IPO, good corporate governance, compliance, investors and customer demands, many established local companies in Indonesia have recently hired consultants to help them with meeting the requirements.

Some use consultants for such other purposes as helping them to improve business process, improve efficiency, train personnel, redesign organizations, in order for them to be able to operate cost-effectively and efficiently, to become lean and more competitive than competitors.

Whether your consulting business focuses on the strategy or operations or business process or transformation or finance, your business is still promising in 2018 and likely in years to come. Today, over 700,000 consulting firms provide services across virtually all aspects of business globally--- and in Indonesia, to my knowledge, there are at least 300 consulting companies, both small and big, operating throughout the country.

From defining the business process improvement, restructuring or organizational redesign and transformation, strategic directions, to simply serving as an additional pair of hands for outsourced work, consultants have inextricably been linked to the success of most large organizations globally. Consultants help organizations to think out of the box, identify the unidentifiable and make the impossible possible.

#5 Leisure and Tourism Industry

Another viable sector worth exploring for investment in Indonesia in 2018 is leisure and tourism industry. Entertainment and tourism including hotels and amusement parks become a major component of this industry. Potential tourism spots spread over the most west to the most eastern part of the country line such as Banjarmasin and Palangkaraya. The exotic cultures and beautiful landscape of these provinces should attract international tourists to visit the areas.

Major cities in Indonesia have been promising places for foreign investors to open international hotel chains. It is a big opportunity for investors to do business in this sector. However, since most of the international tourists arrive in Indonesia through Jakarta, Bali, and Batam, then only these three islands seem to have become the hottest spots for the tourism industry in Indonesia. Investors should consider exploring the other islands such as Kalimantan Islands as their future investment destinations.

The government very much supports every effort to promote tourism industry in Indonesia order to improve the country’s economy... and that’s why the infrastructure improvement has become one of its immediate development and improvement action plan items.

The construction of infrastructure is expected to enable the most beautiful places throughout the country to be easier to access and more enjoyable to visit and even to live in. Infrastructures and facilities such as hotels, hospitals, roads to reach a number of destinations, electricity, clean water, supermarkets/shops, cafes, ports and airports, and bridges should become readily available and easy to access and more convenient to use.

#6 Shipping, Ports and Maritime Industry
Maritime resources have been one of Indonesia’s most attractive development potentials and not only does it have great oceans, but also its surrounding islands have an abundance of natural resources.
Now, the maritime industry is expected to remain highly attractive to investors in Indonesia in 2018. Sea transports such as barges to transport coal long distance are the single cheapest and most effective mode compared to the road transport or train ones in Indonesia nowadays. Small and medium-sized barges with tugboats travel along the inland river system or the Intracoastal waterways to transport coal to nearby seaports.
The use of trains to transport coal is not so popular that only Bukit Asam in South Sumatera and Kereta Api Borneo in East Kalimantan seem to have been known to use railways to transport coal. The latter even allows its railway network that passes through 4 regencies in the province to transport goods other than coal.
Indonesia is a country with a great maritime potential as it has a group of islands with a 95,000 km coastline thus being a great potential for marine industry to grow.
The government supports investors who want to invest in the large scale, capital-intensive projects such as shipbuilding, logistics, ocean shipping, ports and terminals throughout the country.

#7 Telecommunication Technology
At this time, I don’t discuss the E-commerce and financial technology sectors that were lately born like inseparable twins and seems to have also been very disruptive but instead, I will focus the discussion on the growing number of smartphone users in Indonesia and better internet connection services that become more and more important to the users-- and then how investors should explore the challenges as business potentials in the country.

One of the key reasons why the number of smartphone and tablet users is expected to grow rapidly in the years to come - particularly in an emerging market such as Indonesia - is because prices of these devices have now become more affordable.

The recent advent of the relatively cheaper smartphones with a variety of models and specifications from China is believed to have helped boost the significant increase in the number of the smartphone users in Indonesia. 
The number of Indonesian smartphone users is expected to grow from 55.4 million in 2015 to 92.0 million by 2019.

Although smartphone penetration is still relatively low in Indonesia where only about 35% of the population owns a smartphone, the nation has already become the third-largest smartphone market in the Asia-Pacific region after India and China. Due to the low penetration rate, there remains ample room for further growth that means a hugely profitable business opportunity for investors in Indonesia.
The government's Palapa Ring project, one of Indonesia's key infrastructure projects for the period 2016-2019, also plays a crucial role. By developing an undersea fiber-optic cable network that stretches across 13,000 kilometers as well as an onshore network of nearly 22,000 kilometers, the Palapa Ring project aims to provide fast broadband internet to Indonesians in both the urban and rural areas especially Kalimantan and Maluku Islands.
Fast internet connection in Indonesia is now mostly available in the urban regions in Java and Bali. The five Indonesian cities with the fastest internet connection are Bandung, Bekasi, Jakarta, Surabaya, and Tangerang (all on Jawa Islands). Outside these two islands, internet connection tends to be slow and even expensive…these new areas to be worth exploring by investors.

For foreign investors to invest in any of above 7 sectors, the government of Indonesia will give more support and priority to those who have one or more of the following business characteristics:

Labor-intensive industries (mostly manufacturing, tourism/hospitality) ;

Less dependence on imported products and commodities;

Export-oriented;

Capital-intensive industries which apply transferable technology.

Finally, for investors to succeed in any of the abovementioned 7 sectors and win the competition it is worth noting that they shall operate efficiently to always stay lean and then sell at more competitive prices yet with uncompromising better quality products and services. These are the real challenges for all investors to succeed in all the above 7 sectors!