Indonesia’s economy has developed dynamically since the 1997-98 Asian financial crisis, achieving growth rates of approx. six percent. The country achieved negative GDP of -2 percent in 2020 for the first time in 20 years due to the COVID-19 pandemic, however, the decline was rather moderate compared to its regional peers in ASEAN.

Despite the pandemic, Indonesia has increasingly come to the attention of foreign investors, attracted by its large domestic market, improving business climate, and growing technological needs. The country is further expected to liberalize its economic framework conditions in the medium term and long-term as it looks to attract more investments in a post-pandemic era.

What makes Indonesia attractive to foreign investors?

Sound economy

Indonesia’s sound economic policies have contributed to investment growth reaching five-year highs up to 2019. Between 2000 and 2010, the economy grew steadily at an average 5.2 percent, a pace that was exceeded only by China and India, and the World Bank predicts that Indonesia will be one of the six countries that will account for more than half of all global growth by 2025, the others being China, Russia, India, Brazil, and South Korea.

This is a huge development considering that the economy shrunk by 13.7 percent during the Asian financial crises with the worse sectors being construction (-39.8 percent) finance (-26.7 percent), and the retail trade, hotel, and restaurant industry (-18.9 percent). Furthermore, the share of Indonesians living in poverty rose to around 24 percent.

Huge domestic market and expanding middle-class

Indonesia’s middle-class has been growing faster than other groups, with at least 52 million Indonesians now considered economically secure; or one in five. The middle-class now represents close to half of household consumption in the country compared to just 12 percent in 2002. As such, Indonesia’s economy is primarily driven by domestic activity, giving it an advantage during the global financial crisis in 2008 as well as the ongoing COVID-19 pandemic.

The expansion of this group will be key to unlocking Indonesia’s developmental potential. The middle-class is expected to reach 90 million by 2030 and some additional US$1.1 trillion in business opportunities. This led to increasing urbanization and some 56 percent of the Indonesia’s total population live in urban areas and cities.

[tips title="Did You Know"]Indonesia already has the world’s fourth largest population and will enjoy a demographic bonus until 2030, when the share of the population in working ages will be at its highest level and thus the potential for increased output per capita. This is compared to its peers Singapore, Malaysia, and Thailand who are experiencing an ageing population.[/tips]

New emerging sectors – Indonesia’s digital economy

Digital technology will play a leading role in Indonesia in reforming key sectors like healthcare and manufacturing in addition to improving the country’s resilience to disasters like the COVID-19 pandemic.

A 2020 report conducted by Google, Temasek Holdings, and Bain & Company concluded that Indonesia’s digital economy is expected to be valued at US$124 billion by 2025, largely powered by e-commerce, online travel, ride hailing, and online media. This will be facilitated by the country’s vibrant technology sector, supported by one of the highest concentration of startups in the world. There are currently over 2,100 startups in Indonesia, which is preceded only by the US, India, UK, and Canada. From this large number, five have achieved unicorn status and one is a decacorn.

Value of the Internet Economy of ASEAN-6 (US$ billion)






















Source: e-Conomy Report 2020, Google, Temasek Holdings, and Bain & Co

Indonesia is Southeast Asia’s largest and fastest-growing internet economy – more than 170 million Indonesians had access to the internet in 2020, with 10 percent engaging in online shopping.

[video file='https://cdn.jwplayer.com/videos/pmiSWWLl-sZcHHUE7.mp4' image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_2.jpg' title='The Rcep Advantage  Part 3 – Trade Opportunities In Indonesia']

E-commerce is the driving force behind the transformation of Indonesia’s retail landscape, and the country’s gross merchandise value (GMV) was the third highest in the world at US$40 billion, beating India at US$38 billion.

Indonesia thus presents ample and scalable digital opportunities for foreign investors, particularly in e-commerce, fintech, and the Internet of Things (IoT). In trying to fully capitalize on this growth potential, Indonesia’s government issued new digital and e-commerce tax laws in 2020, a sign of the improving regulatory landscape.

This presents unique opportunities for foreign businesses in entering the country’s retail market, in particular. Notable foreign e-commerce platforms that have taken advantage of Indonesia’s large consumer market are Singapore’s Lazada and Shopee, who garner over 140 million monthly visits between them. Indonesian e-commerce giant, Tokopedia, saw an average 86 million monthly visitors in 2020.

Financial technology

Indonesia’s fintech industry is one of the most competitive and dynamic in ASEAN as evidenced by the emergence of four unicorns and one decacorn in the industry. The country is home to 20 percent of all fintech companies in the Southeast Asian bloc, which is expected to generate US$8.6 billion in revenues over the next five years, despite its infancy.

The fintech industry is one of the most funded sectors — along with e-commerce — and is dominated by peer-to-peer (P2P) lending (50 percent) and e-payment (23 percent) platforms. Despite having more than 300 fintech companies operating in Indonesia, foreign investors will find the industry has yet to fulfil its potential. One of the factors is that 60 percent of the country’s workforce is in the informal sector, and many micro, small, and medium sized enterprises (MSMEs) have little access to financing from banks, as they too are mostly operating in the informal sector.

P2P lending

Many local MSMEs have business models that are not compatible with the characteristics of the banks’ financial products. That includes aspects such as payment terms for loan schemes, forms of collateral, and credit quality, among others.

Foreign fintech firms can plug this gap through new financing models that have the potential to serve Indonesia’s 47 million underbanked and 92 million unbanked adults. As of 2020, P2P lending reached US$7.7 billion from 160 fintech companies officially listed by the Financial Services Authority (OJK). This covered over 26 million borrowers throughout the country.

These microloans are popular because of their convenience as it normally takes just 24 hours for the funds to be disbursed, and the terms and maturity are small and short – with borrowers typically receiving not more than US$100. These are normally returned within a few weeks as there are often huge interest charges.


Electronic money transactions rose by 173 percent in 2020 and have become indispensable to Indonesian consumers. The country is predicted to be the next battleground for digital payment apps, with Indonesia possessing many of the key characteristics that are critical for the adoption of digital payment systems.

Some 196 million people have access to the internet and the smartphone penetration rate is 60 percent; above the ASEAN region’s 51 percent. Moreover, the middle-class now comprises 20 percent of the population, a key segment in the growth of the digital economy.

Local players still dominate the market (over 30), and GoPay, OVO, Dana, and LinkAja are some of the frontrunners in the industry. 58 percent of consumers used GoPay, an e-wallet developed by local decacorn Gojek. The company partnered with Bank Jago to develop its e-wallet services, which saw gross transactional value of US$12 billion in 2020. GoJek raised US$1.2 billion in funds to take on its rival Grab. It is also currently in talks with local e-commerce giant Tokopedia in a possible US$18 billion merger.

Grab also has ambitious plans for Indonesia and the region. It owns shares in the Indonesian digital payment platform OVO and is used in more than 115 million devices in over 300 cities. OVO has plans to merge with another local digital payment platform, DANA, which is backed by Ant Financial. If completed, the deal would help Grab in its battle for market share with Gojek.

Since it loosened investment rules in 2016, foreign investors from SoftBank to Alibaba have entered Indonesia’s domestic market and are competing with local firms like Tokopedia, thus providing consumers with a wider variety of services at competitive prices.

For foreign investors in the e-wallet industry, it is essential that they deliver a customer-centric experience to allow customers to pay with the local payment method of their choice, ranging from mobile banking to payments via convenience stores. This is because while Indonesia has a high smartphone penetration rate, a sizeable portion of its population is unbanked.

Cloud technology and big data analytics

Indonesia is embracing cloud technology at speed and scale and has attracted investments from the world’s largest tech companies. In a report compiled by the Boston Consulting Group, Indonesia’s public cloud market is projected to see a compound annual growth rate of 25 percent — to reach US$800 million by 2023. The growing number of digital natives and the expansion of digital unicorns is fast turning Indonesia into one of Asia-Pacific’s fastest-growing public cloud markets.

Alibaba gained a first-mover advantage over rivals Google, Amazon Web Services (AWS), and Microsoft, has launched its second hyperscale data center in January 2019. Google Cloud was launched in Jakarta in June 2020, and AWS will invest US$2.85 billion to build data centers in Indonesia’s West Java province by end of 2021. Microsoft revealed plans in early February 2020 that it would also build data centers in the country.

The management of big data will be key to maximizing the future of Indonesia’s cloud technology industry. Big data will be of great importance in understanding consumer trends in the country, particularly in recording digital footprints through social media platforms. Many MSMEs are using Facebook and Instagram to reach their consumer base. These platforms have 140 million and 77 million users, respectively, as of 2020. It is estimated that the total number of social network users will reach 256 million by 2025.

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