EIU

Passport

Introduction

Indonesia is a country located in Southeastern Asia between the Indian Ocean and the Pacific Ocean. It
has a strategic location astride major sea lanes and is an archipelago of 17,508 islands, some of which
border Timor-Leste, Malaysia, and Papua New Guinea.

The population of Indonesia is more than 276 million and is ranked as number 4 in the world rankings of
population (152.6 per km2). The total area of Indonesia is 1,904,569 sq km. It is the world’s largest island
country and 14th largest by area.

Indonesia has become one of the world's major emerging economies but faces demands for
independence in several provinces and increasing attacks by Islamist armed groups.
(https://www.cia.gov/the-world-factbook/countries/indonesia/#people-and-society)

Indonesia ranked 56th in the Index of Economic Freedom Ranking 2021, performing best in the
Government Spending and Financial Freedom pillars. (Global Edge, 2022)

Political Factors affecting Indonesia

GOVERNMENT SYSTEM

The government system is a republic; the chief of state and the head of government is the president.
Indonesia has a mixed economic system which includes a variety of private freedom, combined with
centralized economic planning and government regulation. Indonesia is a member of the Asia-Pacific
Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN).

The key government branches can be broken down to Executive, Judicial, and Legislative.

The Executive Branch

The president heads the United Indonesia Cabinet and is also head of state, commander-in-chief, and
responsible for domestic governance, policy-making and foreign affairs.

The Judicial Branch

The Mahkamah Agung (supreme court) is the highest level of the judicial branch. The constitutional
court rules on constitutional and political matters, while the judicial commission oversees the judges.

The Legislative Branch

The Majelis Permusyawaratan Rakyat and the Dewan Perwakilan Rakya serve as the two legislative
bodies for Indonesia.

All government branches follow a five-year election cycle.

CORRUPTION

Corruption is still highly prevalent across all governing levels and, hence, the investment environment
remains clouded by heavy bureaucracy and corruption, despite reforms undertaken to strengthen the
judicial system. With a score of 40 out of 100, Indonesia improves two points on the CPI to earn its
highest score since 2012. (https://www.transparency.org/en/blog/the-importance-of-political-integrity-
in-eradicating-corruption-in-indonesia

DIPLOMATIC ALLIANCES

Bureaucratic customs procedures for both exports and imports prevail and are expected to remain a
looming barrier for cross-border trade in the short term. 

In the Index of Economic Freedom, Indonesia stood behind Asian giants like India and China in terms of
government integrity, with the country’s rank in this pillar significantly worsening over 2017-2021.

Economic Factors affecting Indonesia

Indonesia, the largest economy in Southeast Asia, has seen a slowdown in growth since 2012, mostly
due to the end of the commodities export boom. During the global financial crisis, Indonesia
outperformed its regional neighbors and joined China and India as the only G20 members posting
growth.

Indonesia ranks relatively favorably in the Getting Credit pillar in the Ease of Doing Business (Doing
Business) 2020 report, surpassing Asian giants including Japan, China and South Korea. Under Ease of
Doing Business Rank, it ranks 69.6 (71 out of 189) (2020). Indonesia’s economy started to recover over
2021, underpinned by strong exports, robust industrial activity and economic support measures. The
economy is projected to expand at a faster pace in 2022, due to easing COVID-19 curbs, stronger private
consumption and investment as well as the global commodity boom. However, pandemic-related
uncertainty, ongoing supply constraints, global financial market volatility and withdrawal of economic
stimulus in Indonesia could hinder economic growth.

Following real growth of 3.5% in 2021, Indonesia’s economy is expected to expand at an average annual
real rate of 4.8% over 2022-2040. Inflation in Indonesia is forecast to increase to 2.9% in 2022 from 1.6%
a year ago. As Indonesia’s exports increased by 40.5% and imports rose by 39.0% during 2021, the
country remained a net exporter
Poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment,
and unequal resource distribution among its regions are still part of Indonesia’s economic landscape.
(https://www.cia.gov/the-world-factbook/countries/indonesia/)
The economy should recover lost ground in 2021, but is over-reliant on China and has elevated
unemployment. The growing consumer market should allow the country to capitalise on its
demographic dividend, despite progressive ageing.

Exposure to shifts in Chinese demand: Given that Indonesia relied on China for 18.6% of its goods
exports in 2020, this over-reliance on one market leaves the country exposed to shifts in demand from
the Asian superpower, which could damage future export performance if China were to experience a
marked economic deterioration.

Gross Domestic Product (GDP)

According to The World Bank, the annual GDP at purchasing power parity (PPP) of Indonesia in 2020 was
3.3 trillion dollars (ranked 7th globally) with a growth rate of -2.07%. The services sector is the
economy's largest and accounts for 46.4% of GDP (2012), this is followed by industry (38.26%),
Manufacturing (19.88%) and Agriculture (13.7%).

Following a contraction of 2.1% in 2020 due to the coronavirus pandemic shock, real GDP in Indonesia
increased by 3.5% over 2021, underperforming the average growth of 6.4% in Asia Pacific. During the
year, the country’s economic growth was driven by strong exports, robust industrial activity and
supportive macroeconomic policy measures. However, household consumption and private investment
remained muted. The ongoing COVID-19 pandemic and re-imposed containment measures over the
year hindered faster economic rebound and labour market recovery. The unemployment rate continued
to increase, reaching 6.4%

EXPORTS & IMPORTS

The Top 3 Trade Partners are China, Japan, and Singapore (2019). The Top 3 Exported Goods are Oil &
Mineral Fuels, Fats & Oils, and Electrical Machinery. The Top industries are Petroleum and Natural Gas;
Textiles; Automotive; Electrical Appliances

In 2019, Indonesia was the world's biggest exporter of Palm Oil ($15.3B), Lignite ($2.91B), Stearic

Acid ($2.76B), Uncoated Paper ($2.37B), and Coconut Oil ($1.9B)

The top imports of Indonesia are Refined Petroleum ($12.3B), Crude Petroleum ($5.11B), Vehicle

Parts ($3.25B), Telephones ($3.19B), and Petroleum Gas ($2.53B)

In 2019, Indonesia was the world's biggest importer of Steam Boilers ($690M), Steam

Turbines ($656M), Boiler Plants ($329M), Artificial Filament Tow ($182M), and Human Hair ($42.3M)

https://oec.world/en/profile/country/idn

Economic relations with Canada

In November 2021 Canada exported C$216M and imported C$157M from Indonesia, resulting in a
positive trade balance of C$58.3M. Between November 2020 and November 2021 the exports of Canada
have increased by C$95.1M (78.9%) from C$120M to C$216M, while imports increased by C$22.7M
(16.9%) from C$135M to C$157M.

In November 2021, the top exports of Canada to Indonesia were Potassic

Fertilizers (C$85M), Wheat (C$60.4M), Soybeans (C$26M), Sulfate Chemical Woodpulp (C$14M),
and Gas Turbines (C$3.47M). In November 2021 the top imports of Canada from Indonesia were Coated
Flat-Rolled Iron (C$8.68M), Knit Sweaters (C$7.86M), Rubber (C$6.87M), Models and Stuffed
Animals (C$4.89M), and Industrial Printers (C$4.49M).

In 2019, Indonesia exported $1.2B to Canada . The main products that Indonesia exported

to Canada were Rubber ($113M), Textile Footwear ($48.2M), and Cocoa Butter ($38.4M). During the last
24 years the exports of Indonesia to Canada have increased at an annualized rate of 4.45%, from $423M
in 1995 to $1.2B in 2019.

In 2019,  Canada ranked 30 in the Economic Complexity Index (ECI 1.01), and 11 in total exports ($431B).
That same year, Indonesia ranked 68 in the Economic Complexity Index (ECI 0.018), and 30 in total
exports ($186B). (https://oec.world/en/profile/bilateral-country/idn/partner/cri)

Social Factors affecting Indonesia

DEMOGRAPHY

Indonesia has the world’s fourth-largest population.  It is predominantly Muslim and has the largest
Muslim population of any country in the world.  The population is projected to increase to as much as
320 million by 2045.  A government-supported family planning program. 

Indonesia is a source country for labor migrants, a transit country for asylum seekers, and a destination
mainly for highly skilled migrant workers.  International labor migration, both legal and illegal, from
Indonesia to other parts of Asia (most commonly Malaysia) and the Middle East has taken place for
decades because of high unemployment and underemployment, poverty, and low wages domestically.  
Increasing numbers of migrant workers are drawn to Australia, Canada, New Zealand, and the US.  The
majority of Indonesian labor migration is temporary and consists predominantly of low-skilled workers,
mainly women working as domestics.
https://www.cia.gov/the-world-factbook/countries/indonesia/#people-and-society)

Ethnic Groups

Javanese 40.1%, Sundanese 15.5%, Malay 3.7%, Batak 3.6%, Madurese 3%, Betawi 2.9%, Minangkabau
2.7%, Buginese 2.7%, Bantenese 2%, Banjarese 1.7%, Balinese 1.7%, Acehnese 1.4%, Dayak 1.4%, Sasak
1.3%, Chinese 1.2%, other 15% (2010 est.)

Languages Spoken
Bahasa Indonesia (official, modified form of Malay), English, Dutch, local dialects (of which the most
widely spoken is Javanese); note - more than 700 languages are used in Indonesia

Indonesia’s age distribution reveals a relatively young population with 67.8% in the working age group of
15-64 under the age of 65 years according to The World Bank. (https://www.cia.gov/the-world-
factbook/countries/indonesia/#people-and-society)

Technological factors affecting Indonesia

Telecommunication systems

Indonesia’s telecom sector is based on 3G/LTE mobile infrastructure and inadequate fixed-line capacity;
large population and disbursed island geography make upgrades difficult; market is attracting foreign
investment, especially in data center and cloud-based services; tests of 5G challenged by lack of
spectrum; satellite improvements in 2020 (The world factbook– Indonesia, 2022).

Internet users
total: 202.6 million
percent of population: 53.73%
Country comparison to the world: 4 (The world factbook– Indonesia, 2022).

Broadcast Media
Indonesia is the 4th most populous country in the world. It has the potential to become the next big
market for tech investments after China and India. Television is the main medium of mass
communication in Indonesia; however, the use of online platforms is also noteworthy. Indonesians are
among the world’s most active users of Twitter. Other networks that are doing very well in the country
are YouTube, WhatsApp, Facebook, Pinterest, and Instagram (How and What, 2022)

It is worth noting that technological development depends heavily on the availability of skilled labor
forces which Indonesia does not have enough. Other challenges facing the country are data security,
protectionist regulations, and a lack of infrastructure for payments and deliveries. However, it is worth
mentioning the Indonesian government plans to allow start-ups to hire foreign staff more easily to
address the shortage of skills in the booming tech sector (How and What, 2022)

Environmental factors affecting Indonesia

Environment - current issues

Large-scale deforestation (much of it illegal) and related wildfires cause heavy smog; over-exploitation
of marine resources; environmental problems associated with rapid urbanization and economic
development, including air pollution, traffic congestion, garbage management, and reliable water and
waste water services; water pollution from industrial wastes, sewage (The world factbook– Indonesia,
2022).

Environment – International Agreements

Party to - Biodiversity, Climate Change, Desertification, Endangered Species, Hazardous Wastes, Law of
the Sea, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber
94, Wetlands (The world factbook– Indonesia, 2022).

Natural Disasters:

Indonesia is highly exposed to natural disasters (volcanic eruptions, hurricanes, and earthquakes)
(Global Edge– Indonesia, 2022).

Natural Resources

Given its economic situation, Indonesia depends on the depletion of natural resources. Thanks to its
geological location and large surface area, Indonesia is very rich in resources. It can produce a large
variety of minerals at a very high level. To a large extend, the gas and oil reserves are increasingly used
for Indonesia’s own economy. Therefore, among other reasons, the value of crude oil and gas
exports has decreased in the past years (Natural resources in Indonesia - statistics & facts, Nov 2021).

Indonesia's oil and gas sector

Indonesia had a proven amount of oil reserves of approximately 2.5 billion barrels in 2019, while
only producing approximately 0.3 billion billion barrels of crude oil in the year 2018 (Natural resources in
Indonesia - statistics & facts, Nov 2021).

The mining sector is on the rise

Minerals are becoming increasingly important for a large variety of industries especially in the
electronics sector. In 2014, the Indonesian government implemented a ban on exports of unprocessed
minerals hoping to subsidize producing industries in Indonesia. The most important minerals found and
produced in Indonesia are tin, bauxite, nickel, gold and copper (Natural resources in Indonesia - statistics
& facts, Nov 2021).

Urbanization
Urban population: 57.9% of total population (2022)
Rate of urbanization: 1.99% annual rate of change (2020-25 est.)
(The world factbook– Indonesia, 2022)
Revenue from forest resources
forest revenues: 0.39% of GDP (2018 est.)
country comparison to the world: 71
(The world factbook– Indonesia, 2022)

Revenue from coal

coal revenues: 1.06% of GDP (2018 est.)
country comparison to the world: 5
(The world factbook– Indonesia, 2022)

Legal factors affecting Indonesia

Intellectual Property
Amid increasing awareness of the significance of intellectual property (IP) in today’s digital economy,
there has been some promising developments in Indonesia’s IP regulatory framework in recent years.

Since 2014 the government has passed new laws on copyright, patents and trademarks. Although the
mechanisms of IP enforcement and legal enforcement remain problematic, the Trademark and
Geographical Indications Law was warmly welcomed by Indonesia’s IP players. The new law includes
specific provisions on geographical indications, which were previously scattered across separate
regulations. (An overview of Indonesia's legal environment, 2018)

Foreign Direct Investment

Fulfilling its commitment to simplify business licenses in order to foster investment, in June 2018 the
government issued Regulation on Electronic Integrated Business Licensing Services. Referred to as the
online single submission (OSS) system, it introduces an ICT-based business-licensing system that
integrates processes of obtaining licenses from different government institutions. The OSS is essentially
an upgrade of the previous licensing system as it integrates processes that occur at the regional and
national levels and streamlines the process by merging several licenses into one.

(Upgrades to Indonesia's business-licensing framework to make the process more efficient and user
friendly, 2019)

It should be mentioned that opening a business in Indonesia by a foreign business is a complex and
time-consuming process.

Employment Rights
Employment rights are protected by law in Indonesia. Companies need to give special notice to issues
such as payment for over-time work, working hours, religious holiday allowance, and social security.
(How and What, 2022)

References
(The world factbook– Indonesia, 2022) retrieved from:
https://www.cia.gov/the-world-factbook/countries/indonesia/#environment

(Natural resources in Indonesia - statistics & facts, Nov 2021) retrieved from:
https://www.statista.com/topics/4690/natural-resources-in-indonesia/

(Global Edge, 2022) retrieved from: https://globaledge.msu.edu/countries/indonesia/risk

(How and What, 2022) retrieved from: https://howandwhat.net/pestel-analysis-indonesia/

(An overview of Indonesia's legal environment, 2018) retrieved from:

https://oxfordbusinessgroup.com/overview/welcome-steps-approved-regulations-have-improved-
protection-well-known-brands

(Upgrades to Indonesia's business-licensing framework to make the process more efficient and user
friendly, 2019) retrieved from: https://oxfordbusinessgroup.com/overview/streamlined-service-
upgrades-business-licensing-framework-aim-make-process-more-efficient-and-user