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Why invest and do business in Indonesia in 2020?

Today, as the world’s 16th largest economy, Indonesia continues to become an increasingly popular choice for experienced entrepreneurs wishing to enter Asia. According to PwC, Indonesia will be the world’s fourth largest economy by 2050, so entering the market sooner rather than later could offer a significant return on investment and allow you to take advantage of growing opportunities before your competitors can enter the market.

With an economy that has grown more than 5% per year over the past 10 years, it is clear why Indonesia is a strong favourite among foreign investors. Below, we share some of the reasons why you should consider investing and doing business in Indonesia in 2020…

Doing Business in Indonesia: Growing Sectors
investing doing business in indonesia

As one of the world’s fastest growing economies, Indonesia offers significant opportunities for businesses in a wide range of sectors. The country plans to complete construction on 15 new airports by the end of 2020, for example, and to add another terminal at Jakarta’s Soekarno-Hatta International Airport by 2021. Companies in the construction sector can capitalize on the demand for experienced contractors, technicians, architects and project managers.

The country’s education sector is another area of unprecedented growth. With more than a third of a million schools and universities, the country has the fourth largest education system in the world and requires not only new teachers, but more resources, training, technology and construction to feed the next generation of Indonesians. Entering the market and signing a contract with the government could be incredibly lucrative for companies in the sector.

Monitoring Public Expenditure for Opportunities

According to the Investment Coordination Board of the Republic of Indonesia, the country is also expanding infrastructure through roads, shipyards and railways over the next decade, offering opportunities for businesses not only in construction, but also in research, technology, finance and hospitality. Thinking outside the box and looking for ways to seize opportunities, even those not directly related to its niche, is the key to its long-term success. Consider how your business niche can be adapted to these sectors of the Indonesian market.

Free Trade Agreements

As a member of the Association of Southeast Asian Nations (ASEAN), Indonesia can trade with 9 other member states at 0% tax, including Thailand, Malaysia, Singapore, the Philippines, Vietnam, Myanmar, Cambodia, Laos and Brunei. Companies wishing to export their products to other South Asian markets will be able to do so easily, reaching a population of over 650 million and a combined GDP of US$ 2,891,020 million. It is expected that 60% of the world’s growth will come from Asia by 2025.

In addition to ASEAN, Indonesia is currently negotiating free trade agreements with Australia and the European Free Trade Association (EFTA). Since 60% of global growth is expected to come from Asia by 2025, operating in Indonesia makes it strategically located for growth.

Recent Trade Developments

In March 2020, Indonesia concluded its free trade agreement with Australia, which immediately set out to eliminate all remaining tariffs on Indonesian imports. The two countries are seeking opportunities for greater cooperation and trade.

In December 2018, Indonesia signed a closer Economic Partnership Agreement with the European Free Trade Association (EFTA). Although entry into force is pending, this partnership will open up trade routes to Europe for the country, providing companies with a wide reach into various markets.

Ease of Doing Business

According to the World Bank Group’s Ease of Doing Business ranking, Indonesia is the 73rd best country in the world to do business, ahead of the Philippines (#124) but below China (#46) and Malaysia (#15). In 2017, the country ranked 91st and in 2013, 128th, this positive trend demonstrates the improvements the government has made to local regulations governing the business environment.

According to World Bank Country Director Rodrigo Chaves, factors such as the establishment of contracts, procurement of funds, payment of taxes and ease of cross-border trade were the main influences on Indonesian businesses.

Foreign Investors May Own Land

From 2015, foreign entrepreneurs can legally own land in Indonesia for three purposes: Building (Hak Guna Bangunan), cultivation (Hak Guna Usaha) and use (Hak Pakai).

Hak Pakai allows foreign entrepreneurs to buy houses and apartments in the country, which means they can become permanent or temporary residents or even incorporate a “buy-to-let” business and invest in property in the country. Only entrepreneurs with a local or foreign company or a valid work and stay permit (KITAS) can apply for Hak Pakai.

Growing Middle Class

Indonesia has one of the fastest growing middle class cities in the world. According to McKinsey, 90 million Indonesians are expected to join the “consumer class” by 2030. If citizens have higher levels of disposable income and develop more sophisticated tastes, new opportunities will arise for businesses in the market for luxury goods and commodities, particularly those that depend on imports. According to World Meters, the average age in Indonesia is 28.3 years, which offers significant demographic dividends for businesses in the coming decades.

Barriers to Entry

Indonesia may still pose some challenges for companies entering the market. As such, many entrepreneurs stick to busy routes, such as expansion to China or Japan. However, because of the complicated nature of the market, entry barriers can serve as a deterrent for companies that do not have a global vision and those that are complacent when it comes to growing their business.

Consider this an opportunity rather than a setback: if fewer Western companies enter the market, then there is less competition, which makes it easier for you to succeed in your business. The key message here is to be patient and seek expert local assistance to guide you through the expansion process.

English Speaking Businesses

More than 700 languages are spoken in Indonesia and although most use Indonesian, the good news is that the business world is embracing English. For entrepreneurs operating in major cities such as Jakarta, it is possible to network and do business without having to learn local slang or invest in a translator, although they must learn to become familiar with Indonesia’s business culture, which can be very different from that of the West.