Main Industry SectorsEconomic OverviewForeign Direct Investment [FDI]FDI Government MeasuresCountry Strong PointsCountry Weak PointsForeign Trade Overview
The agricultural sector contributes to nearly 14% of the countrys GDP and employs nearly 40% of theactive population. Indonesia is one of the largest rubber producers in the world. The major crops are rice, sugar cane, coffee, tea, tobacco, palm oil, coconuts and spices. Indonesia is the only Asian country to be an member of the OPEC to which it assures 5% of itsproduction. Indonesia is still a net importer of oil. The country has great exploitable timber lands and mainly exportstimber. Industries contribute to around half of the GDP.
The industrial sector includes manufacturing of textiles, cement, chemical fertilizers, electronicproducts, rubber tires, clothing and shoes (most of these are for the American market). Wood processing is also a major activity. The tertiary sector (financial institutions, transportation and communications) contributes to around40% of the GDP. The banking sector is well-developed. The Islamic bank Syariah has expanded rapidly during these recent years. Tourism is a major source of revenue, however, the sector has suffered from terrorist threats andnatural catastrophes.
Due to the unfavorable international economic situation, the Indonesian growth rate hasevidently slowed down in 2009 (4.5%).Indonesia has shown more resistance than its neighboring countries due to the lowamount of exports on its economy and the importance of private consumption since thecountry has a significant domestic market.The country adopted a stimulus plan which lowered taxes, increased subsidies andcommitments for supplemental expenditures, which have allowed to soften the effects ofthe crisis.The growth, estimated at 6% of the GDP, has accelerated in 2010, under the effects ofthe revival of investments and the continuous growth of private consumption.
Despite the good results from the main economic indicators, structural reforms are required. A large program of development of infrastructures has been issued. The country suffers from sub-investment, the authorities are strongly promoting public-private partnerships. The government has also re-confirmed its priority to the fight against corruption. The protection of the environment is a major challenge in Indonesia. The unemployment level remains high and many workers are in a precarious condition. A large part of the population lives below the poverty line and the gap between the very richand the very poor does not diminish.
Foreign direct investment (FDI) in Indonesia, which had collapsed due to the Asian economic crisis in1997-1998, was evidently increasing since 2007, the country had become attractive to investors againthanks to the progress of the business regulation framework. The flows of FDI have, nevertheless, suffered from the global recession in 2009 and even if they havestarted to increase again in 2010, they still remain insufficient considering the size and the potential of thecountrys economy. The reinforcement of political and economic stability has suppressed certain investment risks and hasimproved the market tone. Some restraints still persist, such as the high cost of credit, the poor investment climate, the excessive weight and unpredictability of regulations, the poor condition of the infrastructures, the control of terrorist risk and the high level of corruption.
Incentives to investment are accessible to all investors, national and foreign. Indonesian reductions of duties on imports and equipment goods and additional incentives for exportinvestors and investments made in certain regions. In 2006, the government announced a program for the improvement of the investment climate, whichaims to submit to Parliament a bill on investment, the drawing up of a new negative list applicable oninvestments, the drastic reduction of the time required for the creation of a company, the acceleration ofthe re-examination process of local regulations likely to harm the enterprising spirit, as well as therationalization of customs procedures and the improvement of customs regulations. A privatization program mainly concerning key sectors such as transport and finance and which was initiated in 1998, is regularly updated.
Indonesia has almost 230 million inhabitants, which represents an enormous market. Indonesia has abundant natural resources (timber, fish, oil, natural gas, metals) and enormous biodiversity. Thanks to the State withdrawal, the market is opening up to competition in several sectors(energy, telephone, etc.). The SME grouping allows for great capacity for adaptation. Italy also has a qualified work force (technicalknowledge and high quality production). Entrepreneurs are creative and innovative.
The main hindrance to investment lies in the high cost of illegal deductions, which can be as muchas 60%. For the procedures of starting a company The number of formalities to carry out, time limits for starting up, registration rules and thethreshold of the initial capital A World Bank study has shown that Indonesia is less efficient than other Asian countries. Legal unpredictability is often denounced and several levels of justice are said to be ineffective andcorrupted. The tax and customs authorities are still viewed, in the business circles, as generally beingcorrupted and arbitrary.
Indonesia is a member of the WTO and ASEAN (Association of South-East Asian nations). Indonesia is open to foreign trade, which represented more than 40% of the GDP in 2009. The trade balance of the country is structurally positive. The balance was degraded under the effect of the global recession and the fall of the pricein raw materials; but, it still remained on a surplus due to a small contraction of exports inrelation to imports. The revival of exports as well as imports in 2010 did not change this positive trend. The three main export partners of Indonesia are Japan, the United States and SoutheastAsia. The commodities that are mainly exported are mineral fuels and hydrocarbons, electricalequipment, animal and vegetable fats & oils, nuclear reactors & boilers, and rubber. Its mainexport partners are Southeast Asia, Japan and China. The commodities that are mainly imported are mineral fuels & oils, nuclear reactors &boilers, iron & steel, electric & electronic equipment, and organic chemicals.
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