An Introduction to Indonesia’s Import & Export Industries

An Introduction to Indonesia’s Import & Export Industries

With its rising costs, China is no longer the go to destination for many businesses, and Indonesia has arisen as a serious competitor. Recent trends show that the number of orders shifting from China to Indonesia has seen a significant increase. China’s Pearl River Delta, long known as one of the key factory centers for the world’s manufacturers (particularly those from Hong Kong) has now become too costly for many companies to stay in the region.

Compared with other developing markets in the region, Indonesia is emerging as the clear leader in low-cost manufacturing and sourcing, with the country’s manufacturing sector now accounting for 25 percent of Indonesia’s total GDP. Currently, labor costs in Indonesia are 50 percent of those in China and around 40 percent of those reported in Thailand and the Philippines. With the country’s workforce growing annually by around 1.5 million, Indonesian workers are inexpensive, young, and, increasingly, highly skilled.

Of particular interest to investors has been the continuing growth of Indonesia’s domestic consumer market, which has been developing by bounds and leaps. With a population of over 90 million and Southeast Asia’s fastest growing middle class, Indonesia clearly represents an important market for foreign goods. It is why Indonesia is becoming a great business opportunity and investment.

In the past three years alone, a growing number of businesses have relocated their operations from China to Indonesia in an attempt to escape rising costs and an increasingly complex regulatory environment. Located in a strategic position for foreign companies with operations throughout Southeast Asia, Indonesia is an ideal export hub to reach other ASEAN markets.

Another driving force behind Indonesia’s growing popularity is the country’s collection of free trade agreements (FTAs)– most notably, the soon-to-be-signed Trans-Pacific Partnership (TPP) and EU-Indonesia FTA. Additional FTAs currently under negotiation include the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN Economic Community (AEC). When these trade agreements come into force, Indonesia exports will be freely accessible to many of the world’s largest markets with few tariffs or restrictions.

In terms of financial and regulatory incentives, Indonesia has become increasingly investor-friendly in recent years– the government has taken such actions as reforming its financial sector, streamlining business regulations, and improving the quality of its workforce. Since the mid-2000s, the Indonesia government has offered extremely competitive financial incentives to doing businesses in Indonesia seeking to set up operations in the country, in addition to a zero percent withholding tax on dividends remitted overseas and a low corporate income tax (CIT) rate of only 22 percent (set to drop to 20 percent in 2016). These advantages have enabled Indonesia to become a premier “sourcing economy” in the eyes of many companies.

Leave a Reply

Your email address will not be published. Required fields are marked *