Indonesia Economic Update Report

In the second quarter of 2024, Indonesia’s trade performance remained positive, although challenges emerged due to weaker global demand and falling commodity prices. The country recorded total exports of $62.79 billion and imports of $54.75 billion, resulting in a trade surplus of approximately $8 billion. While Indonesia maintained a trade surplus every month over the past four years, the surplus has been narrowing as exports continue to weaken. Exports grew by 1.72% year-on-year in April, marking the first expansion in 11 months. However, this growth was primarily driven by sectors like tourism and services rather than commodities like coal, which saw a 19.26% decline in value due to falling global coal prices.

Exports grew by 8.28% year-on-year in Q2, benefiting from increased foreign tourism and higher shipments of key commodities like nickel, jewelry, and machinery. Imports also rose by 8.57%, reflecting stronger domestic demand for goods such as mineral fuels, oils, and electronic equipment. This marked the highest import growth since Q3 2022. While export performance improved compared to Q1, with a 1.02% quarterly increase, imports rebounded by 2.82% after a decline in the previous quarter.

China remained Indonesia’s largest trading partner, accounting for 23% of exports and 29% of imports. Other major export destinations included the United States (10%), India (9.5%), and Japan (8%). Despite these improvements, the decline in global commodity prices and weakened demand from key markets, particularly China, continue to challenge Indonesia’s export sector. To protect domestic industries, the government had introduced import duties on products like footwear and textiles. However, these measures were later reversed due to concerns that they might disrupt the flow of essential imported materials, which are critical for domestic production.

Although Indonesia’s trade performance remains solid, it is still vulnerable to external pressures, particularly falling commodity prices. However, ongoing investments in key sectors and the expansion of tourism offer promising growth opportunities for the future.

Indonesia is on the verge of introducing new immigration policies, including a ‘Dual Citizenship’ and the ‘Golden Visa’ program. These initiatives are designed to attract skilled overseas talent and foreign investors as part of a broader strategy to boost economic growth by enhancing infrastructure development and supporting sustainable businesses in the innovative technologies, especially in food and beverage, textile and apparel, automotive, chemicals and electronics industries.

The government plans to offer dual citizenship to individuals of Indonesian descent and former Indonesian citizens currently residing abroad. This initiative aims to encourage skilled professionals to return to Indonesia and contribute to the country’s economy. By facilitating the return of highly skilled Indonesians, this policy aligns with the government’s broader strategy to harness the expertise and resources of its diaspora to drive innovation and economic growth.

In addition to the dual citizenship proposal, Indonesia has launched a long-term visa scheme known as the “Golden Visa”, specifically designed to attract foreign investors. Announced by President Joko Widodo, the Golden Visa program offers 5- and 10-year visas based on different levels of investment. For individual investors, a 5-year visa requires an investment of $2.5 million in setting up a company, while a 10-year visa demands a $5 million investment. The investment thresholds are doubled for investments made in the new capital city, Nusantara, currently being developed in Borneo. Those not interested in starting a business can still gain a 5-year visa by investing $350,000 in government bonds, public company stocks, or placing deposits. A 10-year visa in this category requires an investment of $700,000. The scheme also targets corporate investors, who need to invest $25 million to secure a five-year visa for their directors and commissioners, or $50 million for a 10-year visa.

President Widodo stated that the visa program aims to attract “good quality travelers” who can contribute to the nation’s economic growth. He noted, “We’re launching the Golden Visa to make it easier for foreign nationals to invest and contribute to Indonesia.”. Since its pilot phase last year, the Golden Visa program has already attracted nearly 300 applicants, bringing in $123 million in foreign investment. These new policies reflect Indonesia’s ambition to enhance its economic landscape by welcoming skilled professionals and substantial foreign investments. The President has set a goal to attract over $100 billion in combined investments throughout 2024, suggesting that the government will continue to promote favorable policies to incentivize foreign investment.

This report was compiled with contributions from the team of business experts in our Indonesia office.

ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. Our mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as ESG and operational improvement and compliance.

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