Project Assignment 2

INTERNATIONAL BUSINESS

Selected Country- Indonesia

Shubham Gurung

MBA 3

O191MBA197
Country Overview

INDONESIA

Indonesia is located off the coast of mainland Southeast Asia in the Indian and Pacific oceans.
It is an archipelago that lies across the Equator and spans a distance equivalent to one-eighth
of Earth’s circumference. The capital of the country is Jakarta. Indonesia was formerly known
as the Dutch East Indies. After a period of occupation by the Japanese (1942–45) during World
War II, Indonesia declared its independence from the Netherlands in 1945. Although Indonesia
did not become the country’s official name until the time of independence, the name was used
as early as 1884 by a German geographer; it is thought to derive from the Greek indos, meaning
“India,” and nesos, meaning “island.”
Its islands can be grouped into the Greater Sunda Islands of Sumatra, Java, the southern extent
of Borneo (Kalimantan), and Celebes; the Lesser Sunda Islands of Bali and a chain of islands
that runs eastward through Timor; the Moluccas between Celebes and the island of New
Guinea; and the western extent of New Guinea (generally known as Papua).
Indonesia is the largest country in Southeast Asia, with a maximum dimension from east to
west of about 3,200 miles and an extent from north to south of 1,100 miles. It shares a border
with Malaysia in the northern part of Borneo and with Papua New Guinea in the centre of New
Guinea.
The climate of Indonesia is determined partly by its island structure and its position astride the
Equator, which assure high, even temperatures. Temperatures are highest along the coast,
where mean annual readings range from the mid-70s to the upper 80s °F (low 20s to low 30s
°C). Regions above 2,000 feet are significantly cooler.
Indonesia has played a modest role in the world economy since the mid-20th century, and its
importance has been considerably less than its size, resources, and geographic position would
seem to warrant. The country is a major exporter of crude petroleum and natural gas. In
addition, Indonesia is one of the world’s main suppliers of rubber, coffee, cocoa, and palm oil;
it also produces a wide range of other commodities, such as sugar, tea, tobacco, copra, and
spices (e.g., cloves).
A centralized government and a common language have provided Indonesia with some sense
of unity. Furthermore, in keeping with its role as an economic and cultural crossroads, the
country is active in numerous international trade and security organizations, such as ASEAN,
OPEC, and the UN.
Indonesia has a mixed economy in which both the private sector and government play vital
roles. As the only G20 member state in Southeast Asia, the country has the largest economy in
the region and is classified as a newly industrialised country. As of 2019, it is the world's 16th
largest economy by nominal GDP and 7th in terms of GDP at PPP, estimated to be US$1.100
trillion and US$3.740 trillion respectively. Per capita GDP in PPP is US$14,020, while nominal
per capita GDP is US$4,120. The debt ratio to GDP is 29.2%. The services are the economy's
largest sector and account for 43.4% of GDP (2018), followed by industry (39.7%) and
agriculture (12.8%). Since 2009, it has employed more people than other sectors, accounting
for 47.7% of the total labour force, followed by agriculture (30.2%) and industry (21.9%).
Indonesia is a republic with a presidential system. The President of Indonesia is the head of
state and head of government, commander-in-chief of the Indonesian National Armed Forces
(Tentara Nasional Indonesia, TNI), and the director of domestic governance, policy-making,
and foreign affairs. The president may serve a maximum of two consecutive five-year terms.

Joko Widodo also known as Jokowi, is the 7th and current president of Indonesia. Elected in
July 2014 as the first president not to come from an elite political or military background, he
was previously the Mayor of Surakarta from 2005 to 2012, and the Governor of Jakarta from
2012 to 2014.
Population of Indonesia (2000) is estimated at 273,523,615 people at midyear according to UN
data. Indonesia population is equivalent to 3.51% of the total world population.

• Population growth rate 0.79% (2020 est.)

• Literacy Rate -

• Corruption Perception Index – 85/180

• GDP - $1.09 trillion (nominal, 2020 est.) $3.33 trillion (PPP, 2020 est.)

• GDP Rank - 15th (nominal, 2020 est.) 7th (PPP, 2020 est.

• GDP Growth rate – 3.49%

• Per Capita Income - $4200

Foreign Trade of Indonesia

Since independence, Indonesian foreign relations have adhered to a "free and active" foreign
policy, seeking to play a role in regional affairs commensurate with its size and location but
avoiding involvement in conflicts among major powers. Indonesia is very open to foreign trade,
which represents 43% of its GDP (World Bank, 2018). The main exports are mineral fuels
(23.3%%), animal and vegetable fats and oils (11.3%), electrical machinery (4.9%), vehicles
(4.2%), and rubber (3.5%) rubber (4.6%). Indonesia mostly imports mineral fuels and oil
(16.7%), machinery and computers (14.4%), electronic apparatus (11.4%%) and iron and steel
(5.4%). Indonesia is the second world's largest exporter of thermal coal used in power stations
and has two major customers, China and India, the planet's two largest coal importers.
China remained Indonesia's largest trading partner in 2018, buying up 15.1% of exports,
followed by Japan (10.8%), United States (10.2%), and India (7.6%). The main suppliers are
China (24.1%), Singapore (11.4%); Japan (9.5%), and Thailand (5.8%). China and Indonesia
are forging closer economic ties as the two countries face threats to their trade relations with
the United States due to protectionist actions taken by President Donal Trump.
In 2018, Indonesia recorded a trade deficit of USD 8.4 billion caused by rapidly rising imports
and a slowdown in automobile parts and vegetable oil shipments. According to WTO data, in
2018 exports of goods grew to USD 180.2 billion while imports grew to USD 188.7 billion. As
regards to services, the country exported USD 27.2 billion and imported USD 34.9 billion
worth of services. Despite the government's efforts to mitigate the widening trade gap, the
current account deficit in the second quarter of 2019 hit USD 8.4 billion (3% of GDP, Bank
Indonesia). The country is betting on bilateral and multilateral trade agreements to revive the
sluggish non-oil exports within the next five years. President Widodo insists on the need to
export less raw materials and more processed goods to create more added value and jobs at
home.

Foreign Trade Value

Value in – Million USD

Foreign Trade Values 2015 2016 2017 2018 2019

Imports of Goods 142,695 135,653 156,925 188,707 171,276

Exports of Goods 150,282 144,490 168,811 180,215 167,683

Imports of Services 30,222 30,637 32,592 37,643 39,323

Exports of Services 21,259 24,151 24,665 30,490 30,872

 Foreign Trade Indicators

Foreign Trade Indicators 2015 2016 2017 2018 2019

Foreign Trade (in % of GDP) 41.9 37.4 39.4 43.0 37.3

Trade Balance (million USD) 14,049 15,318 18,814 -228 3,511

Trade Balance (Including Service) (million - -

5,352 8,234 11,435
USD) 6,713 4,243

Imports of Goods and Services (Annual %

-6.2 -2.4 8.1 11.9 -7.7
Change)

Exports of Goods and Services (Annual %

-2.1 -1.7 8.9 6.5 -0.9
Change)

Imports of Goods and Services (in % of

20.8 18.3 19.2 22.0 18.9
GDP)

Exports of Goods and Services (in % of

21.2 19.1 20.2 21.0 18.4
GDP)

Foreign Trade Forecasts

2020 2021 2022 2023 2024

Foreign Trade Forecasts
(e) (e) (e) (e) (e)

Volume of exports of goods and services -10.6 18.4 5.1 8.3 9.6
(Annual % change)

Volume of imports of goods and services -15.0 23.5 4.6 6.4 7.6
(Annual % change)
Main Trading Countries

Followings are the top 10 countries, Indonesia trades with:

Main Customers Main Suppliers

2019 2019
(% of Exports) (% of Imports)

China 16.7% China 26.3%

United States 10.6% Singapore 10.1%

Japan 9.5% Japan 9.2%

Singapore 7.7% Thailand 5.5%

India 7.1% United States 5.5%

Malaysia 5.4% South Korea 4.9%

South Korea 4.3% Malaysia 4.5%

Philippines (the) 4.0% Australia 3.2%

Thailand 3.7% India 2.5%

Vietnam 3.1% Vietnam 2.3%

In the above table we can see that, China is at the top of both the list of top 10 exporter and
importer with the exports of 16.7% and the imports of 26.3% in year 2019. In the list of
exporters, China is followed by US (10.6%), Japan (9.5%), Singapore (7.7%), India (7.1%),
Malaysia (5.4%), South Korea (4.3%), Philippines (4.0%), Thailand (3.7%) and Vietnam
(3.1%). Where in the top 10 importers list, China is followed by Singapore (10.1%), Japan
(9.2%), Thailand (5.5%), US (5.5%), South Korea (4.9%), Malaysia (4.5%), Australia (3.2%),
India (2.5%) and Vietnam (2.3%).
Trade Relation with India

India and Indonesia have shared two millennia of close cultural and commercial contacts. The
Hindu, Buddhist and later Muslim faith travelled to Indonesia from the shores of India. The
shared culture, colonial history and post-independence goals of political sovereignty, economic
self-sufficiency and independent foreign policy have unifying effect on the bilateral relations.

Indonesia has emerged as the second largest trading partner of India in the ASEAN region.
Bilateral trade has increased from US$ 4.3 billion in 2005-06 to US$ 21 billion in 2018-19.
India is the second largest buyer of coal and crude palm oil from Indonesia and imports
minerals, rubber, pulp and paper and hydrocarbons reserves. India exports refined petroleum
products, commercial vehicles, telecommunication equipment, agriculture commodities,
bovine meat, steel products and plastics to Indonesia.

There are about 30 Indian investments / Joint Ventures in Indonesia. As per Indonesian
authorities, Indian investment in Indonesia is 995.18 million in 2215 projects during 2000-
2018. In comparison, Indonesia’s investment in India is limited to about US$ 629.16 million
(April 2000-March 2019).

$50 billion Bilateral Trade Target

India and Indonesia set an ambitious $50 billion target for bilateral trade over the next six years
to deepen cooperation in a number of key areas including economy, defence and maritime
security. The two leaders discussed ways to boost bilateral ties and enhance cooperation in
trade and investment during the G20 Summit in Osaka, Japan in 2019.

Trade between the two countries in 2016 was $12.9 billion. It rose 28.7 per cent to $18.13
billion in 2017 with Indonesia's exports to India reaching $14.08 billion and its imports from
India standing at $4.05 billion, according to Indonesia's Central Statistics Agency.
Indonesia is keen on enhancing trade and investment ties with India in the areas of information
technology (IT), health and pharmaceuticals, agro products, automotive components and
tourism. A release from FTCCI said Indonesian exports to India consists of textiles, electronic
goods, footwear and sawn timber, while chemicals, pharmaceuticals, machines and motor
vehicles are the major imports from India to Indonesia.

Import and Exports

Imports
Indonesia majorly imports Indian buffalo meat, sugar and auto parts from India. Indonesia
imported 94,500 tonnes of Indian buffalo meat worth $323 million in the 2018/19 fiscal year.
It is the third biggest buyer of Indian buffalo meat after Vietnam and Malaysia. Indonesia,
however, bought only 555 tonnes of sugar from India last fiscal year.
Top 10 imports from India (2019) Value

Machinery, nuclear reactors, boilers $632.24M

Organic chemicals $573.47M

Vehicles other than railway, tramway $408.48M

Meat and edible meat offal $309.85M

Iron and steel $245.81M

Mineral fuels, oils, distillation products $223.48M

Oil seed, oleagic fruits, grain, seed, fruits $213.14M

Electrical, electronic equipment $163.83M

Tanning, dyeing extracts, tannins, derivatives, pigments $131.84M

Plastics $122.68M

Exports

Top 10 exports to India (2019) Value

Mineral fuels, oils, distillation products $5.00B

Animal, vegetable fats and oils, cleavage products $2.32B

Iron and steel $776.91M

Miscellaneous chemical products $324.44M

Rubbers $313.12M

Inorganic chemicals, precious metal compound, isotope $297.31M

Paper and paperboard, articles of pulp, paper and board $214.47M

Fertilizers $209.04M

Organic chemicals $200.22M

Manmade staple fibres $159.48M

Foreign Direct Investment (FDI) Inflow and Outflow of Indonesia

FDI Inflows
FDI flows into Indonesia have grown and their base has been expanding thanks to resilient
economic growth, low government debt and prudent fiscal management. According to
UNCTAD's World Investment Report 2020, FDI investment in Indonesia increased by 14%
between 2018 and 2019, achieving USD 23,4 billion; while FDI stock reached USD 232 billion
in 2019

Foreign Direct Investment 2017 2018 2019

FDI Inward Flow (USD million) 20,579 20,563 23,429

FDI Stock (USD million) 231,492 225,720 232,614

Number of Greenfield Investments 120 132 119

Value of Greenfield Investments 9,664 21,310 12,011

Indonesia Investment Coordinating Board (BKPM) announce the first quarter (January-March)
of investment realization data in 2020 reached Rp 210.7 trillion or equivalent to 8.0% increase
compared to the same period in 2019. Investment realization of first quarter contributed 23.8%
to the 2020 target investment realization of Rp 886.1 trillion. DDI realization reached Rp 112.7
trillion dan FDI realization reached Rp 98.0 trillion

FDI Inflow Values from Year 2013-19

Top 5 countries with biggest FDI in Indonesia:

1. Singapore
In first quarter 2020 with US$ 6.5 2.7 billion, amounting to 23.1% 40% of the total FDI
realization in Indonesia, Singapore is highly optimistic about the business prospects in
Indonesia. However, Singapore went third place during the fourth quarter of 2019, investing
US$ 1.1 billion in business ventures.
2. China
China has become a strong player in Indonesia’s FDI. Surpassing Singapore, China rose to the
first place as the top country with the largest foreign investment in Indonesia during the fourth
quarter of 2019 with US$ 1.4 billion. In first quarter 2020, China placed second with a total of
US$ 1.3 billion of foreign investment. Most notably, China’s investment in Indonesia’s
transportation, industry, and tourism.
3. Hong Kong
Hong Kong, along with China, boosted the total of foreign investment in the last quarter of
2019 by US$ 1.1 billion, effectively placing Hong Kong into the list of leading countries of
FDI in Indonesia. Moreover, Hong Kong has invested US$ 2.9 billion throughout 2019 US$
0.6 billion throughout first quarter 2020, amounting to 10.2% 9.3% from the total of FDI
realization.
4. Japan
Another top largest foreign investment comes from Japan. The strong ties between Indonesia
and Japan have resulted in Japan consistently ranked in the top five foreign investors. In first
quarter 2020, Japan has invested US$ 0.6 billion. Some of the sectors that Japan has invested
in are electricity, real estate, gas, and industry.
5. Malaysia
In first quarter 2020, the foreign investment that Indonesia gained from the Malaysia reached
US$ 0.5 billion. This put Malaysia among the other contenders of largest FDI in Indonesia,
removing Netherlands from the list in which investment reached US$ 0.5 billion in the fourth
quarter 2019

Sectors with the largest investments

1) Transportation, Warehouse, and Telecommunication ($3.51 billion)
2) Basic Metal, Metal Based Goods, Non-Machinery and Equipment Industry ($1.73
billion)
3) Electricity, Gas, and Water Supply ($1.28 billion)
4) Housing, Industrial Estate, and Office Building ($1.26 billion)
5) Food Crops, Plantation, and Livestock ($1.22 billion)
FDI Outflows

In 2019, net FDI outflows (% of GDP) for Indonesia was 0.4 %. Though Indonesia net FDI
outflows (% of GDP) fluctuated substantially in recent years, it tended to decrease through
1970 - 2019 period ending at 0.4 % in 2019. The FDI outflows of Indonesia in 2019 was
recorded $3,380.37 million.

FDI Inflow Values from 1970-2019

FDI with special reference to India

Data from the Investment Coordinating Board (BKPM) show that India’s investment in
Indonesia amounted to $82.12 million in 2018, far lower than the 2017 figure of $286.6 million.
Between 2014 and 2018, the country’s investment in Indonesia totalled $518 million. In this
same period, the top five foreign investors in Indonesia, including in infrastructure building,
were all from East and Southeast Asia, such as Singapore, Japan and China.
Indian businesses are looking to participate in various sectors within the infrastructure and
health industries in Indonesia, as investment from India to Indonesia has been growing in recent
years. India-based Adani Ports, part of the Adani Group (an integrated infrastructure
corporation). The company is set to become the operator of Indonesia's new Cilegon container
port (located in the Banten Province). Construction of the Cilegon container port, which will
have a capacity of 2 million twenty-foot equivalent units (TEUs), is expected to start in 2018.
The investment will be no less than IDR 5 trillion (approx. USD $365 million).
Most of India's investments in Indonesia are in wood products, trade businesses, food
manufacturing and textiles. Whereas, Indonesian investment officials would like to see future
investments made in infrastructure and high-value-added industries and preferably made
outside of Java.
Trade Agreements with Other Countries

a) Indonesia-Japan Economic Partnership Agreement

This agreement was signed on 20th August 2007 and came into effect on 1st July 2008. At the
present state of its implementation, more than 92% of goods have been subjected to tariff cuts.
As one of Indonesia’s foremost trading partners, Japan and Indonesia recorded a total trade
value of $31.2 billion USD in 2015.
b) ASEAN-People's Republic of China Comprehensive Economic Cooperation
Agreement
Indonesia is a member of the free trade arrangement between ten ASEAN member states and
China. The initial framework was signed on 4th November 2002. Under this agreement which
came into full effect on 1st January 2010, China and the six original members of ASEAN ‒
namely Indonesia, Malaysia, Brunei Darussalam, the Philippines, Singapore and Thailand ‒
sought to reduce import tariffs on more than 90% of traded goods.
c) ASEAN Free Trade Area
Signed on 28th January 1992, more than 99% of goods categories in this trade bloc are currently
already tariff free. For Indonesia’s intra-ASEAN trade activities in 2015, Singapore and
Malaysia top the list in terms of total value with $30.6 billion USD and $16.1 billion USD
respectively.
d) ASEAN-Australia and New Zealand Free Trade Agreement
Indonesia as a member of ASEAN also has a free trade agreement with Australia and New
Zealand. The trade bloc came into effect on 1st January 2010 having main programmes for
progressively reducing import tariffs to zero within specified timelines, removing barriers to
trade in services, and simplifying customs procedures. Australia and New Zealand are
significant trading partners to Indonesia, recording a total trade value of $8.4 billion USD and
$1 billion USD, respectively, in 2015.
e) ASEAN-India Comprehensive Economic Cooperation Agreement
This agreement was signed by ASEAN member states and India on 13th August 2009 and came
into effect on 1st January 2010. India and Indonesia registered a total trade value of $14.4
billion USD in 2015.
f) ASEAN-Japan Comprehensive Economic Partnership
Indonesia is also involved in another trade agreement with Japan through the ASEAN-Japan
Comprehensive Economic Partnership which was signed and came into effect in 2008. In
addition to tariff elimination, the agreement also allows cumulative rules of origin and provides
a mechanism for settling disputes.
g) ASEAN-Korea Comprehensive Economic Cooperation Agreement
Similar to the ASEAN-Japan Comprehensive Cooperation Agreement, the establishment of a
free trade area between ASEAN member states and South Korea which came into effect in
2007 also aims to vitalise trade through the elimination of tariff and non-tariff barriers.
Indonesia has a sizeable annual trade volume with South Korea; $16 billion USD in 2015.
h) Pakistan-Indonesia Preferential Trade Agreement
Indonesia’s trade agreement with Pakistan was signed in 2012 and came into effect in 2013.
Under the preferential trade agreement, Indonesia and Pakistan grant each other preferential
tariff rates for more than 200 products. The annual trade value between Indonesia and Pakistan
amounted to $2.1 billion USD in 2015.
i) Preferential Tariff Arrangement ‒ Group of Eight Developing Countries
This agreement, which came into effect in 2011, involves countries that are members of the D-
8 Organisation for Economic Cooperation, namely Indonesia, Malaysia, Bangladesh, Pakistan,
Iran, Egypt, Turkey and Nigeria.
Indonesia is also carrying out negotiations for the following trade agreements:

a) India-Indonesia Comprehensive Economic Cooperation Arrangement (India-Indonesia

CECA).

b) Indonesia-Australia Comprehensive Economic Partnership Agreement (Indonesia-

Australia CEPA).

c) Indonesia-Chile Free Trade Agreement (Indonesia-Chile FTA).

d) Indonesia-European Free Trade Association Free Trade Agreement (Indonesia-EFTA

FTA); with Switzerland, Lichtenstein, Norway and Iceland.

e) Regional Comprehensive Economic Partnership (RCEP); with Australia, Cambodia,

India, Japan, Laos, Myanmar, Philippines, Thailand, Brunei Darussalam, China, South
Korea, Malaysia New Zealand, Singapore and Vietnam.

f) Korea-Indonesia Free Trade Agreement; with South Korea.

Trade Statistics of Indonesia
According to Statistics Indonesia, the country recorded a trade surplus of USD 0.2 billion in
June, matching May’s figure. However, June’s surplus was below market expectations and the
USD 1.7 billion surplus recorded in the same month last year.
The weaker-than-expected showing came amid a rebound in imports (June: +2.8% yoy; May:
-17.3% yoy), on the back of a recovery in non-energy imports. In contrast, exports continued
to decline (June: -9.0% yoy; May: -9.3% yoy) on falling oil and gas exports. Lower prices for
these commodities, coupled with soft global trade and ebbing economic momentum in key
economies, explain the print. Moreover, disruption due to Ramadan likely also played a role.
The exports and imports falling 1.7% and 4.7% respectively in 2019, which would bring the
trade balance to a USD 2.9 billion deficit. For 2020, the exports and imports growing 6.2% and
6.3% respectively, with a trade deficit of USD 3.3 billion.

Indonesia Trade Balance Chart

Top 10 exports in year 2019

1) Mineral fuels including oil: US$39 billion (21.3% of total exports)
2) Animal/vegetable fats, oils, waxes: $13.8 billion (7.5%)
3) Electrical machinery, equipment: $13.3 billion (7.3%)
4) Footwear: $7.4 billion (4.1%)
5) Iron, steel: $7.1 billion (3.9%)
6) Vehicles: $7 billion (3.8%)
7) Gems, precious metals: $6.9 billion (3.7%)
8) Machinery including computers: $6.7 billion (3.7%)
9) Rubber, rubber articles: $6.4 billion (3.5%)
10) Clothing, accessories (not knit or crochet): $5.2 billion (2.8%)
Total Trade Value
Total Exports (2019) $167,002,880,981

Total Imports (2019) $170,727,343,535

Trade Balance (2019) ($3,724,462,554)

Exports of goods and services (% of GDP) (2019) 18.41%

Imports of goods and services (% of GDP) (2019) 18.9%

Top 10 Export Countries

Country Export USD$

China $27,876,747,411

United States $17,675,797,497

Japan $15,927,685,124

Singapore $12,929,196,536

India $11,774,323,038

Malaysia $8,941,616,456

South Korea $7,210,266,320

Philippines $6,757,972,042

Thailand $6,213,388,879

Vietnam $5,150,366,460
Top 10 Import Countries

Country Import USD$

China $44,907,914,086

Singapore $17,305,366,372

Japan $15,623,212,256

Thailand $9,462,989,586

United States $9,313,063,895

South Korea $8,417,574,385

Malaysia $7,736,953,726

Australia $5,514,944,439

India $4,295,680,982

Vietnam $3,842,188,002

Top 10 Export Goods

HS Code Export USD$

(27) Oil & Mineral Fuels $34,727,955,083

(15) Fats & Oils $17,541,661,713

(85) Electrical Machinery $8,345,186,607

(87) Motor Vehicles & Parts $8,149,496,839

(72) Iron & Steel $7,410,800,128

(71) Precious Stones & Metals $6,619,815,361

(40) Rubber $6,021,510,164

(84) Industrial Machinery $5,379,379,130

(62) Apparel: Non-Knit $4,484,373,741

(64) Footwear $4,408,062,798

Top 10 Import Goods

HS Code Import USD$

(84) Industrial Machinery $26,786,704,661

(27) Oil & Mineral Fuels $23,480,021,270

(85) Electrical Machinery $19,767,464,624

(72) Iron & Steel $10,392,029,721

(39) Plastics $8,734,494,280

(87) Motor Vehicles & Parts $7,161,249,839

(29) Organic Chemicals $5,818,038,479

(73) Iron & Steel Articles $3,601,722,808

(10) Cereals $3,237,323,432

(90) Precision Instruments $2,867,148,355