MFA: Strategic opportunities for foreign exporters
The contagion of covid-19 was somewhat surprisingly confirmed in Indonesia a little later than in a number of neighboring countries. As part of the subsequent implementation of the measures, the country proceeded very pragmatically in an effort not to completely paralyze the country’s economy, to preserve social stability and not to endanger a large group of people dependent on daily earnings (so-called informal workers). Although the country has so far managed to manage the pandemic “on the fly” without completely shutting down and stopping the economy, it is clear that the effects of the crisis will be felt.
GDP growth was already the lowest in the last 19 years in the first quarter of 2020 (2.97%), and thanks to two successive negative quarters, the country entered a recession. The final result of the economy in 2020 ended at a -2.2% decrease in GDP. Compared to a number of countries that slowed down the economy much more sharply, experienced double-digit economic declines and are not doing much better in the pandemic situation, Indonesia’s pragmatism can be assessed as a prudently chosen strategy. Intensive vaccination is currently underway in Indonesia. The country expects to have 70% of the population vaccinated by mid-2022.
During 2020, the government repeatedly increased the volume of the package intended to overcome the pandemic, to IDR 69 trillion (USD 49 billion), which represents about 4% of GDP. Less than half of these funds were earmarked for health care and, above all, for social spending, with the remaining part for supporting the economy. 123.46 billion was earmarked for the support of micro, small and medium enterprises. IDR and tax incentives are then calculated with the amount of 120.6 billion. IDR. To support the central and regional departments, the package accumulates the amount of 97.11 billion. IDR, while an incentive of 44.57 bil is intended for state-owned companies. IDR.
The increased expenses are partly covered by loans from international institutions (World Bank, ADB, AIIB), partly by issuing bonds, part of which was bought by the Central Bank of Indonesia. Countermeasures increase budget spending even at the cost of a jump in debt. The budget deficit, otherwise strictly limited to 3%, rose to more than 6% of GDP due to extraordinary expenses. For 2021, the country is currently working with a recovery package after covid-19 in the amount of 553 billion. IDR ($39.5 billion).
The slowing down of the economy and restrictive measures understandably mean practical limitations for the launch of new business plans and strategies. It is possible to enter the country, even for business purposes, but only in limited cases and on the basis of special permits. During the second half of 2021, we can expect a shift and a certain opening of the country for business trips.
In the second half of 2021, some trade fairs are also planned in face-to-face mode. While some sectors are hampered by the current situation, and rather than the development of new businesses, long-term and well-established cooperation takes place in them, other sectors are developing quite dynamically – for example, sectors related to e-commerce or the field of healthcare.
In the medium-term perspective, there are significant opportunities for Czech exporters in Indonesia in the area of infrastructure development (transport, energy), the health sector and specific opportunities in the area of the defense industry. With regard to these fields, covid-19 raises certain questions regarding the possible slowdown or limitation of state investments in relevant areas. This does not apply to the health sector, where, on the contrary, the current situation brings a natural revival and interest in intensive development and increase in the quality and capacities of health care.
Despite the possible slowing down of state projects and acquisitions in the other mentioned areas, which will probably be affected by the crisis at least this year, these are still areas in which significant opportunities are offered. The contact restrictions and isolation caused by the pandemic have also boosted the development of digital technologies and e-commerce, which also present themselves as an area of opportunity strengthened by the crisis.
Transport industry and infrastructure
According to allcountrylist,the country’s transport infrastructure needs extensive modernization in practically all areas – roads, railways, airports, urban transport. Together with the growth of the economy and the living standards of the population, the number of cars and motorcycles not only increased, but also clearly showed the under-dimensioning of the infrastructure. In an attempt to solve the situation, a number of projects are underway in the country at the national and local level. Construction of rail and highway corridors across the main island of Java is currently underway, and other major projects are planned, many of which are, however, delayed in the implementation phase.
Solving the practically crisis situation of public transport is one of the top priorities of (not only) the capital city. In the metropolis of Jakarta, the first section of the subway route was opened in 2019, which will be followed by others, and the route of the connecting suburban above-ground rail transport is also being completed. Urban public transport will continue to develop based on these backbone lines. A system for collecting electronic fares and a toll system is also needed.
The civil aviation sector also offers great opportunities, both in the field of airport construction and the supply of aviation technology. Structural innovations from the period of the covid-19 pandemic, although adopted not only because of it, are the facilitation of the activities of foreign entities thanks to legislative changes (the so-called Omnibus Bill) and measures to support foreign investments related to the establishment of a trust fund for financing new infrastructure.
Indonesia announced an ambitious plan to increase energy production in the years 2020-2025 by 35 thousand MW. A no less ambitious goal is a share of 23% of the total volume of energy produced in the country from renewable sources in 2025. Although it currently appears that the figures on the total need for production capacity will be reduced, it is still a very interesting segment. All the more so, as a certain trend can currently be noted, moving away from the classical “big” energy sector again towards smaller, ecological methods of energy production. Geothermal resources, for example, are very promising for the country.
A considerable share should also be made up of hydropower plants, i.e. an area with traditionally strong know-how of Czech companies. Solar and wind technologies can also be applied, especially in combination with energy storage in batteries. The topic of “waste to energy”, i.e. the production of energy from waste, is also a big trend in Indonesia. The main source of electricity in Indonesia will continue to be thermal power plants, as the country has significant reserves of relatively high-quality coal. Tenders for the construction of new power plants in the form of EPC as well as IPP are continuously issued. Czech companies can find employment in both of these models.
The country’s defense budget has been growing in recent years in connection with the current government’s concept of modernizing the army. Expenditures for military modernization are growing, and although in terms of the ratio of expenditures to GDP, Indonesia is still rather below average in the region, nominally it is undoubtedly an interesting market. The government is aware of the relative backwardness of the Indonesian military in armaments compared to some of its neighbors and intends to address this problem by major renewal and expansion of the army’s armaments and equipment.
The specificity of Indonesia consists in trying not to orientate in a given area in one direction and thus avoid dependence. It therefore combines, for example, the military equipment of the USA and Russia and, for the same reason, prefers, in the case of a compatible and competitive offer to the mentioned strong arms countries, those that it perceives as alternative and non-risky through this lens. Equipment of Czech (Czechoslovakian) provenance has a certain reputation in the country and a tradition that can be followed up on. Prospective areas from the point of view of the Czech defense industry include small arms, ammunition, ground technology including vehicles, aviation technology (transport and training aircraft), or advanced electronics.
Healthcare and pharmaceutical industry
The healthcare sector, which is very undersized for the number of inhabitants and relatively underdeveloped, has been undergoing significant development in the last decade. While there were 1,246 hospitals in Indonesia in 2004, the latest available data already speak of the number of 2,813 hospitals in the country, of which 63% are private.
The growth in the number of hospitals and medical facilities intensified after the introduction of universal health care and is understandably related to the rising standard of living of the country’s population. The ratio of hospital beds to population remains well below the average in developed countries.
In terms of business opportunities, it is significant that 80% of all medical and laboratory equipment used in Indonesia is imported. As part of measures against covid-19, the country has built new hospital capacities in the order of several thousand beds and is intensely interested both in the import of medical equipment and in cooperation in its production.
Embassy of the Czech Republic in Jakarta