2020

Country Risk Analysis on

Indonesia

Submitted To:

Dr. Monika Jain

Submitted By-

Group 10-A

Antara Bhattacharjee (19DM038)

Manya Mehen (19DM108)

Ishaan Gupta (19DM081)

Aditya Yadav (19DM019)

Balkrishna (19DM057)

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 TABLE OF CONTENT

S. No. Particulars Page No.

1 Introduction 3

2 Doing Business 4

3 State of Economy 5

4 India-Indonesia Bilateral Relations 10

5 Importance of India Indonesia Relationship 13

6 India Indonesia Trade 16

7 India’s Competitors in Trade with Indonesia 20

8 Indonesia Comparison with India 23

9 Major Hurdles 25

10 Recommendations 26

11 References 27

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 INTRODUCTION TO COUNTRY

Indonesia is one of the world’s most populous Muslim majority country. After the step down
of authoritarian ruler General Suharto in 1998, “nearly 259 million people” of Indonesia have
enjoyed a wending range of political freedom and even the participation in the political
process increased. The former businessman and governor of “JAKARTA”, Joko Widodo won
a five-year presidential firm in 2014. Indonesia has the largest economy in whole Southeast
Asia but after the commodities export boom the growth has been slowed. The exported items
which play key role in the economy of Indonesia are :
“Mineral Fuel”
“Animal or Vegetable fat”
“Electrical machinery”
“Rubber”
“Machinery”
“Mechanical appliance parts”
The continuous improving condition of infrastructure helped “to reduce transport and
logistics costs”. “The significant maritime resources could spur the upcoming future
development of Indonesia”.

INDONESIA ON THE WORLD MAP

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 DOING BUSINESS

Indonesia’s “economic freedom” score is 65.8 with an increase of 1.6 as compared to 2018,

making its economy the 56th place in the 2019 Index. With solid improvements in monetary

freedom, business freedom, and judicial effectiveness the overall score has been increased by

2.3. Among 43 countries in Asia Pacific region, Indonesia is ranked 15th place and its overall

Average is above the world and regional average. The Indonesian government is upgrading its

power and other infrastructure, taking important steps to improve regulatory environment and

prosecuting corruption cases to attract the foreign investment. The subsidies in fuel and

electricity have been dissolved while the other constraints “which includes an inflexible labour

market, “long standing protectionist rules governing trade” and foreign investment in extractive

sectors, subsidies” to many step-down enterprises and also the poor management of public

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finances. The rule of law is also strengthening through the improvement in the legal and

regulatory framework.

STATE OF ECONOMY OF INDONESIA

Indonesia is one of the countries with maximum number of Muslim-majority population.

Indonesia with the” largest economy in South Asia” has slowed due to the end of the

commodity export boom. With the membership of G-20 major economic countries, it is

classified as newly industrialized country. Instead of having it’d GDP per capita rank below

then average, it has ranked 7th in term of GDP and 16th largest economy in the world in terms

of nominal GDP.

The major dependency of Indonesia is on “domestic market”, “government budget” “spending

and its ownership of state-owned enterprises (the central government owns 141 enterprises)”.

The range of price administration of basic goods like rice and electricity plays a crucial role in

Indonesia market economy. The majority of the Indonesian economy has been controlled by

private Indonesians and foreign companies, since 1990.

“Due to the economic crisis that began in the mid of 1997” , “The government of Indonesia

took custody of a significant portion of private sector assets through accusation of

nonperforming bank loans and corporate assets through the process of the debt restructuring

and the companies in custody were sold for privatization after several years. Since 1999

Indonesian economy has recovered and growth has also accelerated to over 4% to 6% in recent

years.

Leaving behind India, it become the second fastest growing economy in G20 (2012), after

China. Since than the annual growth rate slowed down and stagnates at 5% rate. The significant

role in economy is played by” the State-owned enterprises and large private market groups.”

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In Indonesia there are “100ds of diversified privately held business groups that together with

SOEs dominate the domestic economy.”

According to the World Bank Group, in 2017 Indonesia’s economy began on a strong footing

with supportive global environment coupled with strong sound domestic fundamentals. A rise

in quarterly GDP growth from 4.9% in the last quarter of 2017 to 5.0% in the first quarter of

2018, lifted due to the compound and surging exports of government. This all resulted in the

improvement in credibility and fiscal management as per the STANDARDS & POORS credit

rating.

Private consumption as a whole recently has been robust as well as there has been a steady

growth in investments which has improved business environment and lower financial rates.

“Micro, small and medium sized enterprises” of Indonesia, which all” together account for

99% of the total amount of enterprises that are” presently active in Indonesia.” In Indonesia’s

gross domestic product (GDP) they account for around 60% and create employment to nearly

108 million Indonesians.” “This implies that the back bone of this country are these micro,

small and medium sized companies.”

INFRASTRUCTURAL FACILITIES

As per “World Economic Forum (WEF)'s” Global Competitiveness Report 2016-2017,

Indonesia ranks fall down from 52 to 62th out of 144 “economies in terms of infrastructure

development, a mediocre ranking, and one that causes major problems”.

There has been significant lack of quality and quantity of infrastructure in Indonesia such as

roads, harbours, bridges and airports. This clearly implies that the state of infrastructure is very

weak and inefficient as due to high logistic cost and competitive lack among the businesses.

Indonesia is located on the Pacific Ring, so due to its geographical location it “has to absorb

many earthquakes and even a relatively minor one bring serious damage sometimes”, as part

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of “Indonesia's infrastructure is not strong enough to absorb the same.” Similarly, during the

rains, “lack of adequate infrastructure leads to floods, and thus, supply shortage brings the

inflation and “distortion of the distribution network. Currently, as the country’s sea transport

is not developed substantially which result in the high cost of sea transport. “Like in road

transport the distortion in the rail transportation with available access only in Java and limited

areas in Sumatra”. The railways facilities are in poor condition as many of the rails, bridges,

signal and “telecommunication system have exceeded their technical age limits compared to

other transportation modes”, also railway has a very small market share in the transportation

sector.

Generally, there are two kinds of ports in Indonesia, that are “public ports (Public ports consist

of commercial and non-commercial ports” and are intended to”(provide service to the public)

and special ports”.

NATURAL RESOURCES

Indonesia tropical line location give it “so many natural resources, be it biotic or abiotic

elements”. Biotic elements generally mean ”resources that are alive such as plants and animals

and “Abiotic resources” mean natural resources that are not a living being” which includes air,

land, water, forest, etc. Some of the famous natural resources include mineral fuels, animal or

vegetable fat, rubber, steam coal, refined tin, lead zinc, natural gas and nickel ore.” Indonesia

has significant untapped maritime resources that could spur future development”. “Indonesia

has the one of the biggest forests in the world but illegal logging and burning forest are very

common acts which results in air and water pollution thus, killing a lot of endangered species”.

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SOCIO-POLITICAL STATUS

A presidential representative democratic republic is the frame work in which Indonesian

politics takes place, the precedent of Indonesia has both the roles of the sate head as well as the

government head” of a multi-party system. The government exercise the executive power while

the legislative power is in the hand of both “government and two people’s representative

council”. “The judiciary is independent of the executive and the legislature”. As it is a country

with the maximum number of the population being Muslims, The Islamic principle do play a

very important role in the nation’s political decision making instead of it is not an Islamic

country.

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FACT SHEET

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 INDIA-INDONESIA BILATERAL RELATIONS

It’s been more than two millennia to the India Indonesian relationship”. It was in early 1950’s
when “the first president of Indonesia, Sukarno, called upon the people of Indonesia and India
to” “intensify the cordial relations”.

Indonesia has an embassy in Delhi and India operate san embassy in Jakarta”. Moreover, “India
regard Indonesia as a key member of ASEAN. Both have agreed to establish a strategic
partnership”. “Both the nations are member states of the G-10, the E-7, the non- aligned
movement, and the united nations”.

ECONOMIC AND POLITICAL RELATIONS:

India also has economic ties with Indonesia through its free trade agreement with ASEAN, of
which Indonesia is also a member”.

By 2015, the two-country targeted” to achieve bilateral trade of $25 billion with cumulative
Indian investments of $20 billion in Indonesia”.

By 2025, both the nations “have agreed to double their efforts to boost bilateral trade to $50
billion”.

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The decision was taken when PM Modi arrived in Jakarta and exchanged views with president
Widodo of Indonesia. The talk was mainly focusing on the potential areas of cooperation in
areas like “defense”,” maritime security”, “trade and economy”.

According to the Indonesian “Statistics Agency (BPS), trade between the two countries in 2016
was $ 12.9 billion”. It almost rose in 2017 by 28.7% to 18.13 billion USD. Indonesian exports
to India reached $ 14.08 billion and Indian imports reached $ 4.05 billion.

INDIAN COMMUNITY

“There are around 100,000 Indonesians of Indian origin in Indonesia mostly concentrated in
Greater Jakarta, Medan, Surabaya and Bandung”.” They are mainly engaged in trade dealing
in textiles and sports goods”. “There are more than 7500 Indian nationals living in Indonesia”
including engineers, consultants, chartered accountants, “bankers and other professionals”. The
Indian community is very well regarded in Indonesia, is generally prosperous and includes

individuals holding senior positions in local and multinational companies”.

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 Some of the Indian Companies in Indonesia

• PT Essar Indonesia

• SBI Indonesia

• PT GMR Group

• PT TVS Motor Company Indonesia

• PT Asian Paints Indonesia

• PT Minda Automotive Indonesia

• The Tata Power Company Limited

• PT Tata Motor Indonesia

• Bharat Heavy Electrical Limited

• Bank of India Indonesia

• PT Indo Bharat Rayon

• Tata Consultancy Service Indonesia

• PT Tech Mahindra Indonesia

• PT Adani Global and its subsidiaries

• PT Megasari Makmur

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 These companies are generally of banking, Paint Industry, Steel Processing Industry,
FMCG, Automobile, Power Industry etc.

Indian Companies in Indonesia

• Garuda Food - Food Processing Company

• CP Prima- Food Processing

• PT Sumber Jaya Mitra – Infrastructure

• Bank Indonesia International - Banking

• PT Bukaka Teknk Utama - Airport Infrastructure

Importance of India Indonesia Relationship

“India and Indonesia have long historical and cultural linkages”. Recent Development has been
their strategic partnership. “The two-share multiple common concerns”, “one of which pertains
to china’s rapid rise and its intentions in the maritime theatre.

Indonesia despite of its size, region and geographical size is becoming an essential element in
India’s regional strategy.

For India, Indonesia also plays an important part in developing regional order in India.

India’s Institutional relationship with ASEAN is supported and encouraged by the Indonesian
nation.

Cooperation in combating Islamic Extremism, India has also been in position to provide
assistance to Indonesia in countering domestic threats from Islamic jihadists.

Since both the countries are only separated by the sea, Marine Security is a must. India has
developed a strong maritime security with Indonesia.

It is apparent that both the nation generally concerned about China’s power in the region,
especially in the Indian ocean, though both the countries have not come down to a proper
strategy on how to deal with them but still they stand on the same side of the issues.

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“PERCENTAGE SHARE OF EXPORTS TO INDONESIA IN INDIA'S TOTAL
EXPORTS”
*All values are in US Dollar Thousand*

“Year” “India’s Export to “India’s Exports to “Percentage”

the World” Indonesia”

2018 297,320,070 5,484,400 1.8%

2017 302,840,000 1,887,032 0.62%

2016 260,326,912 3,131,503 1.203%

2015 264,381,004 2,868,880 1.085%

2014 317,544,642 4,444,760 1.400%

2013 336,611,389 5,557,939 1.651%

2012 289,564,769 6,021,918 2.080%

2011 301,483,250 6,400,248 2.123%

2010 220,408,496 4,557,083 2.068%

2009 176,765,036 3,002,991 1.699%

2008 181,860,898 2,659,314 1.462%

2007 145,898,053 1,878,196 1.287%

2006 121,200,606 1,869,806 1.543%

2005 100,352,637 1,390,066 1.385%

2004 75,904,200 1,205,594 1.588%

2003 59,360,659 1,039,615 1.751%

2002 50,097,958 769,612 1.536%

2001 43,878,489 476,779 1.087%

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“PERCENTAGE SHARE OF IMPORTS FROM INDONESIA IN INDIA'S
TOTAL IMPORTS”
*All values are in US Dollar Thousand*

“Year” “India’s Imports “India’s Imports “Percentage”

from the World” from Indonesia”

2018 419,340,831 15,032,100 3.5%

2017 459,670,000 14,776,520 3.2%

2016 356,704,792 12,189,259 3.417%

2015 390,744,731 13,902,025 3.558%

2014 459,369,464 15,184,884 3.306%

2013 466,045,567 14,984,084 3.215%

2012 488,976,378 14,068,291 2.877%

2011 462,402,791 13,964,663 3.020%

2010 350,029,387 9,695,329 2.770%

2009 266,401,553 7,599,638 2.853%

2008 315,712,106 6,431,337 2.037%

2007 218,645,294 4,840,346 2.214%

2006 178,212,440 3,610,443 2.026%

2005 140,861,667 3,018,949 2.143%

2004 98,981,129 2,427,665 2.453%

2003 72,430,524 1,879,766 2.595%

2002 57,453,469 1,263,250 2.199%

2001 50,671,106 966,886 1.908%

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 India Indonesia Trade: India Exports to Indonesia

Indian exports to Indonesia are low when contrasted with its imports from Indonesia. Natural
chemicals, ships and pontoons, hardware, vehicles and oil seed are the best wares of India
which are traded to Indonesia. Indian fares to Indonesia have been diminished by 18 % in the
vicinity of 2012 and 2016.As indicated by India Indonesia exchange measurements, India
exports of natural chemicals and water crafts have been declined by 20% and 45% individually
and similar period. The fare estimation of these two items recorded USD 318 million and USD
315 million amid the year 2016.

However, India fare of meat to Indonesia is brought by 427% up in 2016. It is recorded USD
203 million amid 2016 prior, in 2015 it was USD 2.46 million.

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 Total Export (%) of No. Of
S Code Product Description
Value (USD) Exports Shipments

0202 Meat of Bovine Animals, Frozen 131449745.81 26.3 1948

1006 Rice 25725650.76 5.15 35

Ground-nut, Not Roasted Or Otherwise

1202 Cooked, Whether Or Not Shelled Or 23261972.23 4.65 410
Broken

Flat-rolled Products Of Stainless Steel,

7219 18702458.68 3.74 231
Of A Width Of 600 Mm Or More

7601 Unwrought Aluminium 13756041.75 2.75 16

Coconut (copra), Palm Kernel Or

Babassu Oil And Fractions Thereof,
1513 13566086.14 2.71 11
Whether Or Not Refined, But Not
Chemically Modified

Motor Vehicles For The Transport Of

8704 12081813.6 2.42 44
Goods

Synthetic Organic Colouring Matter,

Whether Or Not Chemically Defined;
Preparations As Specified In Note 3 To
This Chapter Based On Synthetic
3204 10284676.85 2.06 950
Organic Colouring Matter; Synthetic
Organic Products Of A Kind Used As
Fluorescent Brightening Agens Or As
Lumino

Petroleum Oils and Oils Obtained From

Bituminous Minerals (other Than
Crude) And Preparations Not
Elsewhere Specified Or Included,
2710 9579391.73 1.92 284
Containing By Weight 70% Or More
Of Petroleum Oils Or Of Oils Obtained
From Bituminous Minerals, These Oils
Being The Basic

8419

Others

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 Products India Imported from Indonesia

HS Total Import (%) of No. Of

Product Description
Code Value (USD) Imports Shipments

Palm Oil And Its Fractions, Whether Or

1511 Not Refined, But Not Chemically 966586385.35 44.5 1544
Modified

Coal; Briquettes, Ovoids And Similar

2701 447137606.62 20.58 843
Solid Fuels Manufactured From Coal

Manganese Ores And Concentrates,

Including Ferruginous Manganese Ores
2603 And Concentrates With A Manganese 247756666.84 11.41 23
Content Of 20% Or More, Calculated On
The Dry Weight

Natural Rubber, Balata, Gutta-percha,

Guayule, Chicle And Similar Natural
4001 90569737.27 4.17 581
Gums, In Primary Forms Or In Plates,
Sheets Or Strip

Industrial Monocarboxylic Fatty Acids;

3823 Acid Oils From Refining; Industrial 32710392.69 1.51 105
Fatty Alcohols

7408 Copper Wire 21727427.63 1 80

8001 Unwrought Tin 16859132.56 0.78 49

Human Blood; Animal Blood Prepared

For Therapeutic, Prophylactic Or
Diagnostic Uses; Antisera And Other
3002 Blood Fractions And Immunological 14585563.59 0.67 16
Products, Whether Or Not Modified Or
Obtained By Means Of Biotechnological
Processes; Vaccines, Toxins

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 India Indonesia Trade: India Imports from Indonesia

According to the India Indonesia two- sided trade statistics, India import worth four times its
fares. India imports from Indonesia worth USD 12189 million amid the year 2016. The import
is declined by 4% in the vicinity of 2012 and 2016. India significantly imports mineral
energizes and creature or vegetable fats and oils from Indonesia and recorded estimation of
USD 4730 million and USD 3696 million amid 2016. While it is noticed a decay of 5% and
10% in imports of these two products.

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 INDIA’S COMPETITORS IN TRADE WITH INDONESIA

Goods of worth “US$135.7 billion” were imported from Indonesia from around the world in

2018, there was increase by 40.1% since 2011 but decrease by -4.9% from 2016 to 2017. Top

10 Indonesian imports are calculated for about (64.6%) of the overall value of the product

purchase from other countries. Indonesian imports represent total of 0.8% globally which

totalled $16.473 trillion in 2018”

Asian countries purchased total of 74.4% of Indonesia’s total imports.” European nations

supplied 9.9% of import that were purchased from Indonesia while 6.5% worth of goods were

bought from North America”. "A smaller percentage of about 2.6% came from African

exporters also”.

“Given Indonesia’s population of 258.3 million people”,” the total of $135.7 billion of imports

in 2019 roughly translates to $500 worth of demand for the product from every person in the

country”.

“Below are the top 15 countries that imported the most Indonesian shipments by dollar value

during 2018. Also shown is the import percentage of total Indonesian exports”.

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 o “China: US$16.8 billion (11.6% of total Indonesian exports)”

o “United States: $16.2 billion (11.2%)”

o “Japan: $16.1 billion (11.1%)”

o “Singapore: $11.2 billion (7.8%)”

o “India: $10.1 billion (7%)”

o “Malaysia: $7.1 billion (4.9%)”

o “South Korea: $7 billion (4.8%)”

o “Thailand: $5.4 billion (3.7%))”

o “Philippines: $5.3 billion (3.6%)”

o “Taiwan: $3.7 billion (2.5%)”

o “Netherlands: $3.3 billion (2.3%)”

o “Australia: $3.2 billion (2.2%)”

o “Vietnam: $3 billion (2.1%)”

o “Germany: $2.6 billion (1.8%)”

o “Switzerland: $2.2 billion (1.5%)”

“”Over three-quarters (78.3%) of Indonesian exports in 2016 were delivered to the above 15

trade partners.””

“South Korea (down by -14%), Japan (down by -13.3%) and Australia (down by -2%)”, these

“three of the top importers decreased their import purchase from Indonesia from 2011- 2018”.

From 2011 to 2018, “Switzerland (up by 1,114%)”, “the Philippines (up by 119.1%) and

Vietnam (up by 109.4%) increased their imports purchase from Indonesia”.

Below is the product listed which gives the highest dollar value in Indonesia’s import purchase

during 2018. Percentage share for each of the product is given as follows: -

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 o “Plastics, plastic articles: $7 billion (5.2%)”

o “Machinery including computers: US$21.1 billion (15.5% of total imports)”

o “Mineral fuels including oil: $19.3 billion (14.2%)”

o “Electrical machinery, equipment: $15.4 billion (11.4%)”

o “Machinery including computers: US$21.1 billion (15.5% of total imports)”

o “Iron, steel: $6.2 billion (4.6%)”

o “Vehicles: $5.3 billion (3.9%)”

o “Organic chemicals: $4.8 billion (3.5%)”

o “Cereals: $3.2 billion (2.4%)”

o “Articles of iron or steel: $2.9 billion (2.2%)”

o “Food industry waste, animal fodder: $2.5 billion (1.8%)”

“The fastest growing is the Plastic, up by 117.6% over the 7-year period starting in 2009.

Following the second palace is the cereals, up by 111.9% which is led by higher revenue for

wheat, rice, corn and buckwheat.”

TOP COMPANIES OF INDONESIA

“Nine Indonesian corporations rank among Forbes Global 2000 for 2015”. Below is a sample

of the major Indonesian conglomerates that Forbes included”:

1. “Gudang Garam (Tobacco)”

2. “Semen Indonesia (Construction Materials)”

3. “Telekom Indonesia (Telecommunications services)”

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 INDONESIA COMPARISON WITH INDIA

BUSINESS FREEDOM

GOVERNMENT INTEGRITY

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TAX BURDEN

GOVERNMENT SPENDING

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INVESTMENT FREEDOM

MAJOR HURDLES

• One of the major hurdles from government side is the regulations placed under Article 67 of

the Indonesian government where the government has not allowed the foreign companies in

telecommunication tower construction and services to enter in their country. This might be due

to the protection of the national services provider as they don’t want to reduce the market of

the national companies. There are also restrictions on plantation sector where the cap remained

to 95%.

RECOMMENDATIONS
• Both India and Indonesia are a force to reckon with in the region and are giving a good

competition to China. A good trade relation between the two countries would help

them go against China.

• As we can see that exports to Indonesia reduced after 2012 that has mainly been

because of very tight regulations put up by Indonesia for foreign investments. Since

both the countries are part of ASEAN, it would be good if India gets some incentives.

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• Indonesia should also reduce the number of sectors where they have kept the cap on

foreign investments (Negative List).

• Given the strong cultural similarities and excellent relationship between India and

Indonesia, there is huge potential for increasing bilateral trade.

• India and Indonesia should make tight ties to underpower China’s claims.

• Indonesia should reduce the number of ministries and departments that approve

business to get started.

REFERENCES

• https://indianembassyjakarta.com/

• http://www.cgibali.in/

• https://pdfs.semanticscholar.org/

• https://thediplomat.com/2016/11/reviving-the-india-indonesia-relationship/

• http://www.exportgenius.in/blog/india-indonesia-trade-india-indonesia-imports-
and-exports-statistics-114.php

• http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Co
untry=ID

• “http://www.bbc.com/news/world-asia-pacific-14921238”

• “https://www.heritage.org/index/country/indonesia””

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