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Southeast Asia’s Plant-Based Food Market: New Consumer Behaviours Post-Pandemic

The COVID-19 pandemic has increased consumers’ health consciousness globally, which has also greatly benefited the alternative protein market. Southeast Asia is no exception as the region recorded a great number of new companies entering the market to grasp market shares in this growing industry.


Thai farmer working in his fields


Almost two years of the pandemic has created a lot of changes in food consumption behaviours globally, including in Southeast Asia. A great number of consumers are now replacing red meat and sugar with vegetables, fruits, and healthy snacks in their diets, while also purposedly spending more money on foods that they perceive are good for their bodies and health. Southeast Asia’s consumer food spending, in general, is expected to skyrocket in the next decade. According to a study by PwC, Rabobank, and Temasek, consumer-driven growth in food spending in Southeast Asia will reach 1.1 trillion USD in 2030, an 83% increase compared to 2019, a growth rate that would outpace even China’s.

These shifts have fueled the growth momentum of alternative proteins across the region. It has been extremely noticeable that despite the higher price for alternative protein products, consumers are willing to spend the extra money because of the health benefits. Moreover, a recent report by Boston Consulting Group and Blue Horizon Corporation indicates that although alternative proteins account for only 2% of the world protein market in 2020, it is predicted to reach 12% by 2035.

Graph showing Southeast Asia meat consumption

Graph showing Southeast Asia's willingness to spend more on healthy foods

Furthermore, due to an increased fear of a connection between the consumption of animal products and communicable diseases, people are now actively trying to find alternative protein sources such as plant-based meat, cultivated meat, and fermented food. This has also been enhanced by the increased availability of plant-based meats and improvements in the taste and texture of alternative protein alternatives in the region.

Plant-based alternatives such as soy-based mock meat, tofu, and tempeh have already been around for a long time in the local cuisine. It is believed that the familiarity with plant-based meat substitutes will accelerate the industry’s adoption and development in Southeast Asia much quicker than in many other regions around the world. Southeast Asian market size of plant-based meat is expected to increase by 25% to 1.7 billion USD by 2025, driven by consumers’ increased awareness of the importance of healthier options and sustainability.

The increase in demand for plant-based meats among consumers is the primary contributor to the growing number of start-ups and legacy brands developing their range of plant-based meats across the region. In Thailand, for instance, the plant-based meat company, Let’s Plant Meat, developed its soy-based patty in just 12 months, which they now sell on the market for half the price of Beyond Meat, a leading western plant-based meat brand. Another example is the Malaysian-based Phuture Daging, which sells minced meat made of soy, rice, peas, and chickpea protein in Singapore and Malaysia.

Of all Southeast Asian countries, Singapore emerges as the leading nation in facilitating the development and expansion of alternative proteins. The Singapore government has a 100-billion-USD plan to prepare for the effects of the climate crisis, which also includes the goal of producing 30% of Singapore’s own nutritional needs by 2030 to reduce the country’s overreliance on imported foods (currently 90%). This has resulted in a great number of homegrown Singapore start-ups venturing into this lucrative field; from NextGen Food’s Tindle brand of plant-based chicken to Karana’s jackfruit replacement meats. The country has also attracted numerous international brands and organizations looking to establish their presence in Asia, with Singapore as their home base.

Moving forward, there will be significant opportunities for all players in the plant-based protein field in Southeast Asia. Companies will need to carefully consider consumers’ rapidly changing preferences to optimize their product portfolio, with new product development focusing on serving consumer needs over product attributes. Many experts also believe that capability-driven M&As or partnerships may increase in the coming years as it will allow businesses to satisfy changing preferences by repositioning themselves through acquiring new skills and venturing into untapped markets.

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    Indonesia’s New Capital Reveals New Business Opportunities

    Jakarta, Indonesia


    On January 18th, 2022, the Indonesian House of Representatives officially approved a law to move the capital of this island nation to East Kalimantan province on the island of Borneo. The new capital was named Nusantara, which means “archipelago” in Javanese. After several delays due to the COVID-19 pandemic, the capital construction project was officially started on March 14th, 2022.

    The current capital – Jakarta is overpopulated with 10.5 million people, making traffic jams a serious problem; the city is also flood-prone and the fastest-sinking city in the world due to the over-exploitation of groundwater due to infrastructural issues from when the city was built in the 1600s. East Kalimantan, on the other hand, is located on the Indonesian island of Borneo and, according to scientific studies, is one of the safest places in this island nation because it is less affected by earthquakes, volcanoes, and tsunamis, which this Pacific Ring of Fire is otherwise regularly subjected to. Relocating the capital to the new region is therefore an attempt to address the major environmental challenges that Jakarta faces, and to promote prosperity in surrounding areas as well.

    Data from Indonesia’s National Planning and Development Agency announced that the total land area for the new capital will be about 256,143 hectares (about 2,561 square kilometres), nearly four times larger than Jakarta which only covers an area of 661.5 square kilometres. The site is set among pristine rainforests, and city planners want the new capital to be built as an eco-tourism site in Indonesia. The move is projected to cost 466 trillion Rp (32.5 billion USD), where the government will be covering 19% of the cost and the rest is expected to be funded by public-private partnerships and direct investment by both state-owned firms and the private sector.

    Map showing Indonesia's new capital

    The Ambitious Plan

    The Nusantara Capital Construction Project will be implemented in different phases. The process will begin with the construction of the central government area, which will house the presidential palace, government office buildings, and residences for government employees, including the military and police. About 60,000 government employees are expected to be relocated from Jakarta to Nusantara by the end of 2023. Estimates also suggest that the population in the new Indonesian capital will reach around 320,000 by 2045. Construction of the new capital is estimated to complete within 15 to 20 years.

    Many expectations are set for the new capital of Indonesia. First, the relocation will ease the environmental and traffic burden that Jakarta currently experiences. Second, the new capital will also positively impact 10 districts and cities in the region, most of which still have a weak infrastructure.

    In the long run, President Joko Widodo desires to build Nusantara into a “ten-minute city”, a city with a full public transport system with which people can move from one point to another within 10 minutes. The rate of public transport commuting in the new capital will be increased to 80% compared to the current levels in Jakarta. In addition, Nusantara is planned to have 70% of the area filled with trees. The new capital is expected to help realize the country’s commitment to tackling climate change and reaching the goal of using 100% renewable energy by 2060. In a speech at the State Palace, President Joko Widodo hoped that the new capital would be a preeminent representative of the nation, and set an example for the development of other cities.

    Potentials for Investment and Business

    With the ambitions set for Nusantara, the new capital is revealing its broad-ranging potential for medium and long-term investment in many for many businesses and industries. As constructing the new capital will require building new roads, railways, houses, and offices, as well as require a complex infrastructure to enable the “ten-minute-city” and green hub, the city, in particular transportation, will need intensive investments and innovative solutions.

    Along with the improved infrastructure and increased attention on the new capital, the tourism of East Kalimantan also shows a promising potential, which in turn will boost the economy of the whole area. The region has a rich biodiversity, with over 11 primate species, over 130 mammals, 3000 types of trees, nature reserves, and rainforests. The unique ecosystem will attract tourists and allow the tourism industries to flourish.

    While fossil fuel-fired power plants currently generate the majority of electricity in East Kalimantan, the president wants the future capital to be mainly powered by renewable energy. This presents a substantial potential for overseas investors within the sustainability sector, for example in solar energy and biomass. There’s also the prospect of constructing a large-scale electricity storage system to channel power from the neighbouring province of North Kalimantan, where the government is currently constructing a hydroelectric project.

    Jakarta will remain the commercial and financial centre of Indonesia, however, the capital relocation plan aims to expand economic activity beyond the island of Java, as well as ensure more equitable economic development, especially in eastern Indonesia. East Kalimantan is known for its wealth of resources, which include coal, gold, and oil. Opening new trade routes via eastern Indonesia might help the province tap into new export markets, particularly for mining commodities like coal and gold, which already account for 80% of Indonesia’s exports.

    To attain the ambitious goals set for the new capital, investments will be required in a large variety of sectors. The opportunities are not limited to the already mentioned sectors as the construction of a new city will naturally affect a wide range of industries, investors can find plenty of new opportunities in Nusantara and Eastern Kalimantan.


    In short, with the relocation of the capital, hopes of a greener city and a more uniform development across the country, Nusantara discloses opportunities in Indonesia and across the Eastern region. Infrastructure, tourism, trade, and energy are the four dominant pillars that will initially receive the most attention, but foreign investors and businesses are encouraged to tap into this opportunity as high growth can be expected across a wide range of industries as well.

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      Marcus Sohlberg, Business Development Director

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      Southeast Asian Governments’ Shift in COVID Polices Gives Way to Economic Revival

      The impact of the COVID pandemic has started to subside in Southeast Asia. Regional governments continue to ease restrictions and further open their borders in 2022, giving rise to the recovery of key tourism industries and cross-border businesses. Despite the recent uncertainties caused by the Russia-Ukraine conflict, the region’s overall economy is still set for robust growth.


      Commuters in Bangkok


      This insight is part of Southeast Asia’s COVID update series by Asia Perspective. Read the previous insight here.

      Graph showing COVID vaccination progress in Southeast Asia

      One quarter into 2022, Southeast Asia experienced another surge in daily COVID-19 cases. Vietnam’s daily cases escalated more than any part of the region, with more than 80% of its total recorded cases happening within this period. The country’s government stressed that extra efforts are needed to reduce the number of new cases, severe cases, and fatalities. At the end of February 2022, Thailand raised its COVID-19 alert level to level 4, the highest alert level which indicates very high health risk, as the number of severe cases and deaths continued to rise. However, the government stated that it would not impose new lockdowns. Its neighbor Malaysia has also not been able to lower their cases to less than 10,000 registered infections per day. Some of the key reasons behind the high infection rate in Southeast Asia are the spread of contagious Omicron variant as well as the less precautions amongst the population after the reopening of the societies.

      Philippines, on the other hand, significantly improved infection control, successfully keeping the daily cases to less than 1000 cases per day since the start of March 2022. Philippines recorded a 24% decline in daily infections in the last week of March 2022, compared to a week earlier, while the total number of cases of Indonesia in March 2022 is 2.7 times lower than its February figure.

      Graph showing COVID cases in Southeast Asia


      Despite the high daily cases, many countries are well on track with the vaccination timeline, such as Vietnam, Malaysia, Thailand, and have managed to stabilize the situation in some of the big cities and provinces.

      Graph showing COVID vaccination timeline in Southeast Asia

      More than 70% of the population in Vietnam, Malaysia, and Thailand have been fully vaccinated. Initially, all governments targeted to achieve herd immunity by fully vaccinating around 70-90% of the population. High vaccination coverage allows these countries to reach a ‘new normal’ state, where businesses can return to their pre-COVID level of operation and the people can resume normal movement, both domestically and internationally.

      Vietnam, home of 98 million people, is currently among the world’s most highly vaccinated countries. As Vietnam recently finished vaccinations of people aged 12 and older, the country now aims to wrap up booster shots for adults within the first quarter of 2022, and start rolling out vaccination for children aged 5-11 starting April 2022. With new Omicron-fueled cases on the rise, Thailand’s government has recently stepped up a campaign to vaccinate the elderly and other vulnerable groups. Malaysia, the first country in Southeast Asia to reach its herd immunity target, is ramping up the booster shot rollout. As of March 23rd, over 15 million Malaysians, equivalent to more than 40% of the population, have received a booster shots for COVID-19. Overall, it is evident that these countries’ efforts to secure COVID-19 vaccine doses through robust multilateral relationships has already paid off.

      In contrast, Indonesia and the Philippines are lagging behind their targets. As of March 2022, the share of fully vaccinated people in the two nations have not even reached 60% of their population, and there was little vaccination progress during the first quarter of 2022. Amidst the exponential increase in the region, Indonesia shortened the recommended interval between the second and third dose for individuals aged 60 and older from six months to three. The Philippines also announced its plan to accelerate the administration of booster shots and the vaccination of senior citizens, including improving the accessibility of vaccination sites, simplifying the process, and increasing engagement with localities.

      Current Travel Regulations and Social Restrictions

      As Southeast Asia moves past the worst of the omicron wave, the region will begin a transitioning toward an endemic phase starting in the second quarter of the year. Vietnam, Malaysia and the Philippines announced waived quarantines for vaccinated international travelers with negative tests upon arrival, while Indonesia and Thailand eased testing requirements to boost tourism.


      Vietnam resumed flight routes with 20 international destinations in the Asia Pacific, Europe, and the United States. However, the flight frequency is still limited compared to pre-covid levels. Yet, it is expected to quickly increase. Effective from March 15th 2022, Vietnam’s government resumed its visa exemption policy for 13 countries for up to 15 days, which had been in place prior to the pandemic. The policy applies to citizens of Belarus, Denmark, Finland, France, Germany, Italy, Japan, Norway, Russia, South Korea, Spain, Sweden, and the UK.


      Following its fellow SEA neighbors, Indonesia started easing travel restriction since daily infections have dropped by 90% compared to the mid-February peak. After initially trying the program in Bali, Batam, and Bintan islands for two weeks, the government is now applying its quarantine-free travel policies for fully vaccinated individuals to the rest of the country, which would soon end the two-year border closure. The five-day quarantine will still be required for unvaccinated or partially vaccinated travelers.


      On April 1st 2022, Malaysia began its transition toward the endemic phase, an exit strategy that would allow Malaysians to return to near-normal life after nearly two years of battling the COVID-19 pandemic. All restrictions on business operating hours have been removed and prayer activities are now allowed without physical distancing.

      The Philippines

      Following an initial lift of a nearly two-year ban on foreign travelers from a selected few countries, fully vaccinated travelers from everywhere are allowed to enter the Philippines and are no longer subject to facility-based quarantine upon arrival from April 1st. Travelers must present proof of vaccination and negative RT-PCR results from a test taken within 48 hours from their country of origin.


      As the tourism-reliant Southeast Asian nation seeks to boost economic recovery, foreign visitors are now only required to undergo an RT-PCR test on arrival and a self-administered antigen test on day five, instead prior pre-departure RT-PCR COVID Test, starting on April 1st. At the same time, the government announced the extension of a nationwide state of emergency which will remain until the end of May to keep the spread under control.

      Economic Landscape: Tourism, Trade, Mergers and Acquisitions (M&A)

      Asian Development Bank (ADB) forecasted Southeast Asia’s GDP growth to be 5.1% for the year 2022, with the worst-case scenario for GDP growth to be -0.8 percentage points from the baseline forecast, factoring in the impact of the Omicron wave. In comparison, the GDP growth in 2021 landed at 3%. The road to recovery, however, has been complicated by the recent Russia-Ukraine conflict. Given Southeast Asia’s dependence on exports, the economic expansion would likely suffer from supply chain uncertainties and soaring energy prices. In March 2022, S&P Global changed its growth forecast for emerging Southeast Asia to a still relatively robust 5 percent, lowered from the initial forecast of 5.6 percent.

      4.7 million Southeast Asians fell into extreme poverty in 2021, according to a new ADB report. As many as 9.3 million jobs disappeared in comparison with a baseline no-COVID scenario. Economic output in 2022 is forecasted to remain more than 10% below the COVID-free scenario. Unskilled workers, retail, and non-regulated workers, as well as small businesses without a digital presence, are among the most affected.

      However, a recovery was noted in Southeast Asia towards the end of 2021. The region witnessed a rise of 161% in visits to retail and recreational areas in February 2022, compared to the levels throughout 2020. Economies with high technology adoption (Singapore, Malaysia, Thailand), merchandise resilience (Malaysia, Singapore, Thailand, Vietnam), and rich natural resources (Brunei, Laos PDR, Indonesia) are likely set for a stronger return.

      The continuing trend of this year for Southeast Asian countries would be to reopen their borders for international quarantine-free travel to recover the region’s key tourism industries, which nearly halved their GDP contribution from 2019 to 2020. Border reopening also gives ways for stronger cross-border business activities. Multiple sectors could expect the return of international investors and business operators wanting to expand their portfolios in the region.

      “Revenge travel” from overseas tourists is highly anticipated. A surge of 268% in flight booking from South Korea to Southeast Asia between March 11th-22nd, 2022 has already been recorded. The region’s largest sporting event SEA Games, which will be hosted by Vietnam in 2022, is also expected to boost interregional travel.

      M&A activities in the region remained positive up until February 2022, mainly driven by Singapore. Southeast Asian startups raised at least 1.96 billion USD in private equity and venture capital transactions in the month. Deal count dropped 23% compared to January, yet big-ticket transactions increase deal value by 15% month-on-month. Singapore leads Southeast Asia’s funding scene by both volume and value. Indonesia came second with 34 startups raising 198 million USD. Startups in the software and SaaS sector received most of the funding. Followed are fintech, e-commerce, data analytics, and AI. Powered by interregional megadeals, Southeast Asia’s M&A activities remain bullish as the world weathers recent changes and increasing uncertainties. Dealogic recorded a reduction of 29% in the number of global mergers in the first quarter of 2022 compared to the same period of the previous year. Asia-Pacific suffered a 33% drop in transaction value, the heaviest drag among the recorded regions (North America fell 28%, Europe fell 25%).

      Graph showing deal value in 2022 in Southeast Asia

      While the number of COVID cases has continued to rise, the pandemic’s impact on the economy has been subdued in 2022. The GDP growth in most SEA counties will likely surpass the previous year’s level. Border reopening in the region helps boost the recovery of the tourism industries and the return of overseas businesses, which will significantly facilitate Foreign Direct Investment (FDI) growth and M&A in the investment-fueled region. At the same time, governments must watch out for the progress of the Russia-Ukraine conflict and prepare immediate action plans to deal with its potential consequences, such as supply chain disruption and soaring commodity prices. All in all, the overall economic growth will only be guaranteed with recovery strategies across multi-sectors.


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        Marcus Sohlberg, Business Development Director

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        Sourcing & Manufacturing in Indonesia: An Introduction

        Jakarta city center


        Global supply chain disruptions have made companies aware of the importance of diversifying supply chains. As China focuses more on advanced manufacturing, companies target new markets for low-cost sourcing in Southeast Asia.

        In this article, we review what makes Indonesia interesting as a supply market for foreign companies. We will cover its manufacturing industry, the benefits of choosing Indonesia for manufacturing, and the disadvantages.

        Finally, we also review its free trade agreements and the most active regions and cities for manufacturing.

        Indonesia Overview:

        • Population: 274 Million
        • Capital: Jakarta
        • Bordering countries: East Timor, Papua New Guinea, and Malaysia
        • Major cities: Jakarta, Surabaya, Medan, Bekasi, Bandung, Makassar

        Indonesia’s Manufacturing Industry

        Indonesia’s manufacturing sector contributes to more than 20% of its GDP, a significantly high level by global standards.

        There are only five countries with manufacturing contributing to more than 20% of national GDP, including China, South Korea, Japan, Germany, and Indonesia. At the same time, the country still has relatively low exports of goods and services as a proportion of GDP.

        This will change as exports are predicted to grow much in the coming years. The government has a goal to turn Indonesia into one of the top ten economies globally by 2030 and where manufacturing will be at its core.

        Indonesia has traditionally exported much palm oil, petroleum, minerals, and coal. Other major industries now include garments and textiles, electronics, and automotive. Japanese companies have been particularly present in the market, investing in the automotive, electronics, energy, and mining sectors.

        The automotive sector is considered important and contributes to more than 10% of the GDP, which speaks for itself. Since the 1970s, a fair share of Japanese brands have set up plants through local joint-ventures, including brands like Mitsubishi, Honda, and Toyota.

        Investors should also be aware of Indonesia’s growing renewable energy sector, where we see much room for development. Renewable energy contributes to 12% of the national consumption, a number that is predicted to increase to 23% by 2025.

        A challenge is to become less reliant on fossil fuels, which can hamper foreign investments if government goals cannot be met.

        Benefits of Manufacturing in Indonesia

        While companies have traditionally turned to China for manufacturing, increasingly more companies seek to diversify and target Southeast Asian markets. Indonesia is together with Vietnam and the Philippines the most interesting manufacturing destinations in Southeast Asia.

        Below you can find the main reasons why foreign companies seek to enter the Indonesian market, both for manufacturing purposes or to profit from its growing middle-class.

        Young and growing labor force

        Indonesia has a population of around 275 million with a median age of 29.7 years. The population will continue to increase and the country will have the fifth biggest population globally by 2030.

        At the same time, we see a high urbanization rate as young people move to bigger cities for job opportunities. Around 135 million are part of the workforce and that will continue to grow.

        Low labor costs

        Indonesia has the lowest labor costs in Southeast Asia, even outperforming Vietnam. While Vietnam has labor costs that are 1/3 of China’s, Indonesia’s labor costs are around 1/5 compared to China.

        In addition to its large and young workforce, the low labor costs is one of the main perks for foreign companies who invest here. As mentioned in separate articles, we also have to consider productivity when comparing labor costs.

        Productivity is still low in Indonesia compared to other ASEAN countries due to its low-tech contribution of manufactured products that are exported.

        Growing domestic market

        Foreign companies also eye Indonesia’s growing middle-class which will grow significantly in the coming years. It’s predicted that the middle class will increase by as many as 75 million people from 2020 to 2030.

        E-Commerce and digital banking are two of the most promising areas with much room for growth. Early investors can benefit from a greater knowledge of the market and by building valuable networks locally.

        Disadvantages of Manufacturing in Indonesia

        It’s equally important that you know about the disadvantages of setting up manufacturing operations in a low-cost sourcing market. Below you can find some of the most outspoken disadvantages of choosing Indonesia as a supply market.


        Indonesia’s infrastructure is mediocre by global standards, something that hampers investments and growth. The president, Joko “Jokowi” Widodo, is sometimes even referred to as “The Infrastructure President” due to his generous goals to improve the infrastructure.

        With an increasing population, urbanization, and industrialization during the past 20 years, we’ve seen great need for infrastructure improvements. From 2020 to 2024, the government aims to invest USD 430 billion in different infrastructure projects, which will benefit both local companies and foreign investors.

        Bureaucracy and red tape

        Indonesia is infamous for its bureaucracy and red tape that has kept investors on the sidelines. During the covid-pandemic, the country prevented USD 50 billion in fiscal support due to red tape, which speaks for itself.

        Red tape is one of the main issues why Indonesia hasn’t climbed in the World Bank’s ease of doing business ranking. The issue is clearly addressed by the leadership and a priority to attract more foreign investors.

        Free trade- and bilateral agreements

        Free trade- and bilateral agreements are key selling points for low-cost country sourcing. The ongoing US and China trade war is pushing foreign companies to find alternative markets with lucrative trade agreements.

        Vietnam is currently ahead among low-cost markets in Southeast Asia, having a free trade agreement with the EU (EVFTA), as well as a bilateral agreement with the US.

        Indonesia has signed bilateral free agreements (FTAs) with Chile, Australia, Iceland, Liechtenstein, Norway, Switzerland, and Mozambique. Yet, it has only enforced its free trade agreement with Chile so far.

        The country also negotiates free trade agreements with India, Turkey, the EU, and Tunisia.

        Industrial Regions & Cities

        Indonesia is as wide as the distance from Paris to Kabul and has 17,000 islands. Despite its large size, manufacturing is concentrated on the island of Java, where Jakarta is located.

        Java is the home to 60% of Indonesia’s population and contributes to 58% of the country’s GDP. Most manufacturing activities can be found in West Java, Central Java, East Java, and Banten.

        In this section, we review the provinces that contribute the most to Indonesia’s manufacturing output and what sets these apart.

        Central Java

        Central Java heavily relies on manufacturing and the sector contributes 30% of its GDP. The main industries are production of textiles and garments, accounting for 56% of investments. Other notable industries include non-metallic minerals, as well as wood and food processing.

        The province has a developed infrastructure by national standards, having 11 seaports and 4 international airports.

        Semarang is the biggest and financially most important city in the province, previously being a major seaport under Dutch rule. It has a strategic location for imports of products and labor costs are lower than in Jakarta.

        The city will also benefit from foreign and domestic investments such as the Kendal Industrial Park. Also known as Park by the Bay, it’s a joint investment project with Singapore and will create as many as 100,000 jobs in Semarang and surrounding areas.

        West Java

        West Java enlaces Jakarta to the South and East and is one of the most economically active regions in Indonesia. 60% of Indonesia’s manufacturing activities can be found here, including textile production, automotive, machinery, and electronics.

        It’s particularly interesting for companies who invest in plantations, livestock, and agriculture, thanks to its fertile soil. West Java accounts for 20% of the country’s rice production and 70% of the tea production.

        Bekasi Regency, Bogor Regency, and Depok border Jakarta and are all important for domestic production and exports.

        East Java

        East Java might be located further away from Jakarta but still has great economic output, contributing to 15% of Indonesia’s GDP. The province is the home to the biggest shipbuilding yard nationally and has the biggest cement factory.

        The provincial capital, Surabaya, has a significant economic value and has been one of the busiest and most important trading city ports in Asia since the early 1900s.

        Manufacturing is concentrated around heavy equipment, shipbuilding, electronics, food processing and agriculture, and home furnishing.


        Located to the West of Jakarta, Banten has a strategic position as it links the island of Sumatra with Jakarta. Being less developed and densely populated than the above-mentioned provinces, there’s much room for growth in Banten.

        Tangerang City and South Tangerang City absorb much of the investments thanks to their proximity to Jakarta and more developed infrastructure. There’s better access to seaports, roads, education, electricity supply, and healthcare in the cities.

        Banten has abundant mineral resources, including coal, phosphate, and gold, making mining one of its most important industries. The province also has notable manufacturing activities in the automotive, chemicals, and food- and beverage industries.


        With a population of 275 million, Indonesia is the most populous country in Southeast Asia and with a workforce of around 135 million. With rapid urbanization and a median age of 29.7, the country is set to become a manufacturing hub in Asia in the coming years.

        Its domestic market is expected to see great growth as disposable incomes increase and more people get access to smartphones, the internet, and modern financing options.

        At the same time, the country struggles with infrastructure issues, red tape, and regulations that tend to be unclear and change frequently. To attract more investments, the country must become more transparent and ease the regulations for foreign investors.

        As companies seek to diversify and become less reliant on China as a single sourcing market, countries like Indonesia and Vietnam will get more attention. This is particularly the case when China will shift from primarily being a low-cost sourcing market, focusing more on advanced manufacturing.

        Indonesia has a bright future ahead, as long as it plays its cards right and makes the market more accessible.

        Read more about our sourcing & supply chain experience or our other consulting services.


          Marcus Sohlberg, Business Development Director

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          During the consultation we will discuss your needs and how Asia Perspective can help. Please fill out the form and you will be contacted within 24 hours.

          Marcus Sohlberg, Business Development Director

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          by Asia Perspective Asia Perspective No Comments

          Thriving Cloud Business Drives Indonesia’s Spending on IT


          IT worker using a laptop in a server room

          Amazon Web Services to Invest 5 billion USD In Indonesia Cloud Business

          In December 2021, Amazon Web Services (AWS), U.S. e-commerce giant Amazon’s cloud service, declared its plans to invest 5 billion USD in Indonesia over the next 15 years, as it launched its first cloud infrastructure in the country. Jakarta becomes the 10th location of AWS’s cloud service in the Asia-Pacific, and the 26th globally. Other AWS regions in the Asia Pacific include Singapore, Beijing, Sydney, and Mumbai.

          AWS claimed that the investment would bring about 24,700 new jobs and contribute 10,9 billion USD to Indonesia’s GDP within the 15 years. The announcement also implies that existing AWS’ Indonesian customers – including local tech unicorns, startups, enterprises, and government institutions – can now leverage AWS technologies from the local data centres to serve end-users.

          Indonesia – one of Asia’s hottest data battlegrounds

          The cloud market of Indonesia is currently relatively competitive with a lot of actors entering the market. Since 2018, Alibaba Cloud – the subsidiary of Chinese conglomerate Alibaba Group – set early steps into the Indonesian market, in June 2021 it already launched its third data centre in the country. Google Cloud also entered Indonesia by setting up partnerships with local data operators in 2020. Tencent Holdings, another Chinese tech giant, had its first data centre operating in April 2021  and plans to have the second one up and running in short. In the same year, Microsoft also revealed its intention to establish a data centre in Indonesia.

          Some other foreign cloud providers that are present in the country are Japan’s Nippon Telegraph & Telephone, Singapore’s Keppel DC, and Princeton Digital Group. Local players are also attracted to the thriving cloud business, such as Telekomunikasi Indonesia – the largest telecommunications company in the country, as well as Data Center Indonesia.

          Indonesia to lead Asia Pacific in IT spending

          The appeal of Indonesia’s cloud market can be explained by some major factors. Firstly, the nation is the fourth most populous country in the world, making it a huge market with multiple untouched areas to dive into. Secondly, Indonesia is experiencing a booming digital economy. The e-commerce and fintech industries in the country receive a lot of attention from investors. The country is also home to an impressive number of tech unicorns – startups valued at more than 1 billion USD. A notable name is the tech startup GoTo, which was born in May 2021 from the merge of ride-hailing and payments company Gojek, and Indonesian e-commerce company Tokopedia. It has successfully raised 1.3 billion USD in its last funding round right before its planned IPO in 2022. Thirdly, the government’s local data storage requirements and the surge in demand for digital services during the COVID-19 pandemic has fueled the digital transformation of the country. Local businesses have been prompted to digitalize their operations during lockdowns when most of the employees had to work remotely.

          With the increasing competition for cloud services and data centres, Indonesia is expected to have the fastest-growing IT spending in the Asia Pacific region over the next few years. The country has already become the biggest spender for IT in Southeast Asia since 2013, and is now set to pass other large countries as well. The country’s IT spending is expected to have a CAGR of 13% 2020-2024, bringing the sector’s value to 6 billion USD by 2024. With this pace, Indonesia’s IT spending will rank eleventh in the Asia Pacific by 2024. Japan and China are expected to spend the most at 155 and 141 billion USD respectively. The whole region’s expenditure on IT is expected to grow at an 8% CAGR to 475 billion USD by 2024, mostly driven by a demand for public cloud services.

          Regarding revenue from cloud services, Indonesia was the second-highest earner in Southeast Asia’s cloud business 2020. With 600 million USD in total cloud-based revenue, Indonesia ranked just behind Singapore’s 1.8 billion USD. Indonesia’s revenue is expected to more than triple by 2025.

          Graph showing Cloud market revenue in indonesia

          However, there are also some obstacles for Indonesia to reach its full potential. According to Economist Intelligence Unit chief economist, “The challenge Indonesia has is around data nationalism, that the government there puts restrictions on companies in terms of having to host everything and be subject to restrictions in moving data in and out of the country, across borders. That is going to limit the adoption of some technologies in the market.”

          It’s undeniable that Indonesia is one of the fastest-growing cloud markets in the Asia Pacific. As a tech-startup hub and with a flourishing digital economy, the country shows ample opportunities for digital services, especially cloud services and data centres. Growing investment into the sector parallels the growth in IT spending in the country. Therefore, despite some regulatory challenges the market might encounter, Indonesia’s cloud market will continue to thrive in the upcoming years.

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            The Regional Comprehensive Economic Partnership (RCEP) promotes connectivity among economies in the Asia-Pacific region

            The Regional Comprehensive Economic Partnership (RCEP), the world’s largest trade deal, officially took effect on January 1, 2022, targeting a market of 2.2 billion consumers.


            RCEP 2022


            RCEP Overview

            Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement (FTA) among 10 ASEAN member countries and an additional 5 countries: Australia, China, Japan, South Korea, and New Zealand. RCEP was signed in Hanoi, Vietnam on November 15, 2020, aiming to form the East Asia Free Trade Agreement (EAFTA) and the Comprehensive Economic Partnership in East Asia (CEPEA).

            Map showing RCEP members

            The 15 members of RCEP accounts for 30% of the world’s population (2.2 billion people) and 30% of the global GDP (26.2 trillion USD), forming the largest trade bloc in history. RCEP is the first free trade agreement between China, Japan, and South Korea, three of Asia’s four largest economies.

            Table comparing RCEP with major FTAs

            As of November 2, 2021, 6 ASEAN countries and 4 of the partner countries, including China, Japan, Australia, and New Zealand, sent their ratification of the RCEP Agreement to the General Secretary of ASEAN. On this basis, the RCEP Agreement officially took effect starting January 1, 2022. RCEP has two major changes compared to previous FTAs: consolidated Rules of Origin (ROO) and tariff reductions. Both will have positive impacts on trade within the region and will likely attract multinational corporations into the bloc.

            Enhance Trade with Accumulative Rules of Origin

            The agreement’s accumulative ROO is the RCEP agreement’s biggest accomplishment. A good will be considered to meet the ROO requirement if it meets just one of the following three conditions: the good is wholly obtained in a member country; the good is produced solely from materials originating in one or more member countries; the good is produced from non-originating materials that meet the requirements of the Item Specific Rules. For example, cotton from China processed in Vietnam, under the new cumulative ROO, will be deemed to have originated in Vietnam when Vietnam exports the final product to another RCEP country. In general, the RCEP brings together all the original rules of origin outlined in the ASEAN-Plus-one and other bilateral preferential trade arrangements (PTAs). Thus, businesses will only need one ROO when trading within the bloc.

            Accordingly, the RCEP creates huge benefits to some key export industries of its members, for example, Vietnam’s textile and garment industry. The previous FTAs which Vietnam had signed with Japan: VJFTA and AJCEP, both required two-step rules of origin: the fabric had to be produced in the ASEAN country or in Japan to be eligible to receive tariff preferences. With the new RCEP Agreement, Vietnam manufacturers can import fabrics from anywhere; as long as the fabric is then cut and sewn in Vietnam, tax incentives will be implemented when exporting to Japan. Vietnamese exports to any of the member countries of the agreements will now be more time- and cost-efficient. Other industries such as footwear, automobiles, agriculture, fisheries, and telecommunications will also enjoy similar advantages with the new RCEP.

            Overall, the relaxed, consolidated ROO will reduce costs and enhance global value chain activities for any company that has supply chains spanning in Asia. Multinational companies that would like to move parts of their production to Asia will also find it easier to establish supply chains in the region.

            Benefits for China with Tariff Abolition and Reduction

            The RCEP will eliminate tariffs and quotas on more than 65% of traded goods, improving market access. The member countries agree to reduce or eliminate customs duties imposed on goods by approximately 92% over 20 years. Some tariffs will be eliminated immediately, while others will be phased out gradually over 20 years. However, this does not necessarily imply extensive tariff abolition for all member countries, as more favourable trade agreements already exist between some of the member countries.

            Among the countries, China is the one that will benefit greatly from this agreement. RCEP members are all important partners of China. In the first nine months of 2020, trade turnover between China and its member countries amounted to 1.055 billion USD, accounting for about one-third of the country’s total foreign trade turnover. With RCEP, 85% of Chinese goods will enjoy zero tariffs when exported to RCEP countries. Further on, a total of 98.2% of Chinese products will be granted zero Australian tariffs in the long run. Overall, the share of trade with free trade partners is expected to increase from 27% to 35%, and China will have a total of 19 free trade agreements with 26 partners.

            Thanks to RCEP, China can also establish its first free trade agreement with Japan. During the first three decades after China’s reform and opening, Japanese investment in China was mainly in the form of “re-exports”, meaning that Japan invested in manufacturing in China, to then export those products to other countries. With RCEP, preferential tariffs will be immediately applied to 57% of Chinese goods exported to the Japanese market. Therefore, Japanese investors who are eager to switch from re-export investment to investment focused on the China market can promote this strategy further with RCEP.

            In general, global partners and investors can benefit from a bigger market, more flexible supply chains, lower transaction costs in RCEP countries with this new partnership.

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              Indonesia is On Course to Become a Major Solar Power Exporter

              In 2021, the government rolled out two important regulations showing strong support for investments in renewable energy. Its neighbouring country, Singapore, signed two agreements on the same day to import solar energy from Indonesia. A recent finding by the Australian National University reveals that Indonesia’s solar power system could reach 190,000 TWh in 2050, far more than the nation’s total demand.


              Solar farm in Bali, indonesia

              Long-awaited Boost by the Government in the Renewable Energy Sector

              So far in 2021, the Indonesian government has issued two important regulations, the energy ministry’s Regulation No. 26/2021, addressing the use of rooftop solar power systems, and the Electricity Procurement Plan (RUPTL) for 2021-2030. The two regulations are expected to support the goal to have renewable energy make up 23% of the country’s total energy mix by 2025.

              Energy ministry Regulation No. 26 amended the previous 2018 solar rooftop regulation with one notable point. Independent power producers (IPPs) that signed power purchase agreements (PPAs) with the state-owned power company PLN will now be able to export 100% (instead of 60%) of the electricity generated by rooftop solar panels. While the regulation is still under debate, it would undeniably improve the investment appeal in solar rooftop systems.

              Moreover, the RUPTL 2021-2030, released by PLN, sets the target that renewable energy should account for 51.6% of the national energy mix by 2030, a significant increase from the 30% target set out in the RUPTL released in 2019. PLN plans to build 40.6 GW-worth of new power plants through 2030, 20.9 GW of which would be from renewable resources. Hydropower would account for around half of the new renewable energy resources, solar for 4.7 GW, and geothermal for 3.35 GW.

              Graph showing share of new power plants to be built by 2030

              PLN’s plan aligns with the government’s zero-carbon pledge by 2060. The coal-dominated power sector is one of the largest contributors to Indonesia’s carbon emissions. Indonesia’s long dependence on coal power plants has lately been more precarious as China, a major investor in Indonesian coal power plants, pledged to halt investment in coal power abroad. Slowed drafting of supportive regulations, coupled with the nature of the business requiring high initial costs and low return on investment, made investments in renewable energy unattractive. On average, the Indonesian installed capacity of renewable energy has only grown by 4% since 2012, compared to more than 10% in Malaysia, Singapore, Vietnam and Thailand.

              Graph showing Indonesia's renewable energy installed capacity

              Several further steps need to be taken to achieve the government’s ambitious goals, including finalizing the laws for renewable energy and the presidential regulations for pricing and procurement for renewable energy. Additionally, an optimum energy transition roadmap is required to strike a balance between environmental conservation and sufficient energy supply.

              Major Cross-Border Solar Power Projects

              Multiple promising solar power projects were recently announced by the government, including exporting deals with Singapore and Southeast Asia’s largest floating solar power project with the United Arab Emirates. The projects, as interpreted by experts, are signals of an export-intensive strategy in which local and international companies seek to export green energy from Indonesia to its neighbours.

              Two Joint Development Agreements (JDAs) were signed on October 25, 2021, by Singaporean companies for the import of solar energy from Indonesia. One was signed by Singapore’s Sembcorp Industries, which announced that the joint development plan would include the development of a large-scale integrated solar and energy storage in Indonesia’s Batam, Bintan, and Karimun (BBK) region. Another JDA, signed by PacificLight Power (PLP) – a Singaporean-based power retail company, and a consortium of Indonesian power companies, was for a 100MW pilot solar export project from Indonesia to Singapore. The JDAs were signed after Singaporean Minister for Trade and Industry announced Singapore’s plan to import around 30% of its electricity from low-carbon sources by 2035.

              After a financing agreement between PLN and Masdar of the United Arab Emirates, Indonesia began working on a 145 MW floating solar power project, the largest in Southeast Asia, on August 3, 2021,. The project is scheduled to begin commercial operation in November 2022. A similar plan will also be developed in eight other reservoirs in Java and Sumatra.

              Vast Potential in Indonesia’s Solar Energy Sector

              A recent study published by the 100% Renewable Energy team at the Australian National University (ANU) outlined that Indonesia’s potential in solar energy is far larger than the potential in any other energy sources, and much higher than needed nationally.

              Graph showing Indonesia's solar energy potential

              The research team forecasts that Indonesia could harvest 10 billion solar panels by 2050. The panels could be distributed across the archipelago, from rooftops, abandoned coal mine sites and agriculture sites, to floating on the country’s inland sea, lakes, and reservoirs.

              Chart showing Indonesia's solar energy potential by region

              The Indonesian Ministry of Energy and Mineral Resources reported a total of 154 MW of installed solar panels as of 2020. That is far below Vietnam (16,500 MW) and even less than Singapore (377 MW). However, the new improvements in regulations and the influx of solar projects could significantly change the Indonesian current standing.

              Indonesia has tremendous opportunities to become a major exporter of solar power. The latest regulations signify the government’s focus on the sector, which helps boost interest in solar investments. The newly signed projects with Singapore also prove Indonesia’s prospect in selling its vast solar power potential to neighbouring countries.

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                Southeast Asia’s Improved COVID Situation Offers a Positive Outlook For Economy Rebound

                With intensive vaccine rollout and heavy restrictions, Southeast Asia has significantly improved its COVID situation towards the end of 2021. Regional governments are gradually lifting restrictions and pushing to reopen, aiming to strike a balance between virus containment and movement of people and money.


                Tourists in Bangkok, Thailand

                Southeast Asia’s COVID Cases

                Southeast Asia’s top economies – Vietnam, Indonesia, the Philippines, Malaysia, and Thailand, all faced a surge in COVID cases during the summer of 2021. The number of COVID-infected citizens soared in Indonesia during June-July, making it the country with the highest rate of infections in the region. Vietnam, originally successful in preventing the disease, also suffered a severe outbreak from June of 2021.

                Table showing number of confirmed COVID cases in Southeast Asia

                With heavy restrictions in place, the rate of daily new COVID cases has decreased for most countries. Indonesia, once the pandemic centre of Southeast Asia, reported the lowest number of daily new cases among the top economies. Except for Thailand, other countries have reduced their daily record of infections to less than 5,000 cases.

                Graph showing daily ne confirmed cases in Southeast Asia

                Southeast Asia’s COVID Vaccination Progress

                Making up for a slow beginning, Vietnam and Indonesia are speeding up their vaccination program with over 1 million doses administered daily in October. Thailand and the Philippines are lagging in the race, with around 5 to 6 thousand doses administered daily. Only Malaysia has fully vaccinated over 70% of its population.

                Table showing vaccinations in Southeast Asia

                All countries target to achieve herd immunity with at least 70% of the population fully vaccinated against COVID-19. There are several complications in reaching these deadlines. For example, shortage of doses, government and localities coordination and local anti-vaccine movement (particularly in the Philippines and Indonesia), just to name a few.

                Vietnam and Indonesia both aim to achieve herd immunity by March 2022. The Philippines is set to immunize 60% of its population by the end of 2021. Malaysia has surpassed the 70% benchmark and plans to vaccinate 80% of its target population (adults aged 18 and over) by December 2021. Thailand aims to vaccinate 70% of its population within 2021, focusing on covering tourist-concentrated areas.

                Countries are also introducing vaccination programs to children ahead of the new school year. In October 2021, the Philippines began a pilot program in hospitals to vaccinate minors aged 12 to 17 with underlying medical conditions. Thailand recently kicked off a vaccination program with the Pfizer vaccine, aiming for more than 5.04 million students, aged 12 to 18. Vietnam will also start vaccinating children aged 12 to 17 with the Pfizer-BioNTech vaccine, starting November 2021.

                Future Outlook: GDP, FDI, Supply Chains, and Tourism

                The surge in infected cases led several governments to apply COVID-zero strategies, including limited international and local movements, and halted business activities. Unsurprisingly, strict regulations carried a negative impact on the economy. After months of heavy restrictions that put the economy on the brink, countries in Southeast Asia have lifted several social curbs and, most importantly, planned to reopen.

                According to Oxford Economics, Foreign Direct Investment (FDI) flowing into Southeast Asia remains strong. As the global value chains continue to adjust to higher labour costs and trade protectionism in China, Southeast Asia is likely to be the key beneficiary. London-based think tank Capital Economics projected the region’s economy to rebound strongly in the fourth quarter of 2021 as COVID cases have dramatically reduced.


                Vietnam’s GDP declined sharply by 6.17% in Quarter 3 of 2021 – the first recorded negative growth since 2000. In the first nine months of the year, the country’s GDP has now only grown by 1.42%. The Ministry of Planning and Investment estimates the annual GDP growth of 2021 to be at 3-3.5% compared to 2.91% in the previous year.

                Foreign investors remain optimistic about Vietnam’s long-term growth. Its role in the global supply chain is only expected to grow, as noted by American Chamber of Commerce in Vietnam. Information services company IHS Market also stated that Vietnam’s involvement in the global supply chains would not be diminished by the pandemic, since the costs to relocate would outweigh the costs of momentary disruptions.

                The government is developing a roadmap to be fully open to international tourists by June 2022. A pilot program for fully vaccinated international visitors to Phu Quoc Island will be carried out in November 2021, before reopening Nha Trang, Ha Long, Hoi An, and Dalat in December.


                Indonesia, Southeast Asia’s largest economy, is expected to grow by 4.5% in the third quarter of 2021, much lower than the 7.07% growth of the second quarter. Indonesia’s finance minister stated that domestic demand had improved since the second week of August as restrictions relaxed. Exports from Indonesia, the world’s largest exporter of thermal coal and palm oil, also spiked as prices reached a record high. The new official forecast for the annual GDP in 2021 is at 4%.

                The Indonesian Investment Ministry disclosed that the rate of foreign investment in Indonesia in the third quarter of 2021 decreased by 2.8% quarter-to-quarter, but increased by 3.7% year-on-year (YoY). With 13% of total foreign investment, the housing sector, industrial estates, and offices received the most attention. The transportation, warehouse, and telecommunications sectors received around 12.3%. The government is targeting 900 trillion rupiahs in total investment in 2021. By September, Indonesia has reached 73.3% of the target.

                Indonesia is bracing itself for the year-end holidays, as nearly 20 million people are forecasted to travel to Java and Bali. The government has implemented several protocols for reopening tourist sites and hospitality services.


                Capital Economics projected an uptick in the Philippines’ GDP in the third quarter of 2021 from the second one. The second-quarter GDP was equivalent to an 11.8% growth YoY. Capital Economics also expects the fourth-quarter GDP to grow by over 4% compared to the third-quarter result and the annual GDP to grow 4.5% in 2021. The government set a target of 4-5% growth this year.

                In the first half of 2021, FDIs to the Philippines amounted to US$4.3 billion, a 40.7% increase from the previous year’s level. The approved foreign investment reached a 45.5% increase YoY in the second quarter. The major investors to the Philippines in the quarter include the United Kingdom, which accounted for 55.6% of the total approved foreign investments, followed by South Korea (10%) and the United States (9.5%). 55.7% of the total foreign investment pledges are in the Information and Communication Industry (ICT). Construction came in second with a 16.1% share of total foreign investment commitments, while manufacturing came third with a 10.1% share.

                The Philippines currently permits fully vaccinated international travellers from low-risk areas to arrive without quarantine. Most businesses in Metro Manila are allowed to operate at full capacity, while casinos, bars, and indoor tourist attractions can reopen at 30% capacity.


                According to the Malaysian Institute of Economic Research (MIER), Malaysia’s economy is on the path of a V-shaped recovery. The GDP growth for 2021 is projected to be at 4.0%, slightly less than the average 4.9% growth of the pre-COVID period. Considering the improved COVID situation in Malaysia, Fitch Solutions has also revised the GDP growth forecast for Malaysia from 0.0% to 1.5% in 2021. Fitch Solutions’ forecast for 2022 remains at 5.5% growth in GDP.

                In the first half of 2021, FDIs in Malaysia surged 223.1% YoY amid the pandemic, as stated by Malaysian International Trade and Industry Minister. FDI and domestic direct investment (DDI) have played a significant part in growing the company. FDI inflows in Malaysia targeted the manufacturing sector, which accounts for 79.9% of the total investment flow in the second quarter of 2021.

                Archipelago Langkawi has reopened in October 2021 as part of the government’s Tourism Recovery Plan; however, the destination is only available for vaccinated domestic visitors.  The government plans to welcome domestic visitors to Tioman Island, Johor, Melaka, and the state of Sabah on the island of Borneo. International travelers will be welcomed after inter-state travel and tourism are running run smoothly.


                Thailand’s economy is set to grow at a slower pace than previously expected. The Finance Ministry lowered its forecast to 1% growth in annual GDP, from 1.3% predicted in July. The ministry expects the economy to have declined by 3.5% YoY in the third quarter. As a reopening plan is rolling, the ministry forecasts a 3% growth YoY in the fourth-quarter GDP. Thailand’s trade performance was higher than expected, with a 17.1% growth in exports YoY for the first three quarters of 2021.

                In the January-September period, Thailand’s investment pledges climbed to a 140% growth from the year before. Japan, the United States, and China were the top three sources of FDI applications. Industries that saw significant inflows of foreign investments include electrical and electronics, medical and chemical sectors.

                With tourism representing 18% of its GDP, Thailand has been the most eager country to reopen its doors to international travelers. Since the last week of October 2021, Thailand has welcomed vaccinated travelers from more than 40 countries. Beginning November 1, travelers from 6 more countries and territories that Thailand considers “low risk” will be able to enter without quarantine. The government anticipates 1 million tourists to enter Thailand by March 2022.

                After a long battle with the pandemic surge, Southeast Asia has been able to relax its stringent social restrictions. The intensive vaccination programs have played an important role in curbing the daily infection rates. While the road to rebound to pre-pandemic levels might have prolonged, the region’s top economies have made multiple measures to balance its pandemic control and economic recovery. The short-term disruption in supply chains did not diminish Southeast Asia’s growing importance in the global supply chains, as foreign investors are still keen to enter the region.

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                  Indonesia Extends Luxury Tax Break for Small-Car Sales

                  In an attempt to restore the nation’s economy amid the pandemic, the Indonesian government extended its luxury tax break for sales of small cars, first enacted in March 2021, until year-end. The incentive has paved the way for the industry’s impressive recovery. However, challenges remain.


                  Indonesian woman driving a car


                  Indonesia, the second largest automobile manufacturing nation in Southeast Asia, faced a severe decrease in both demand and supply for cars due to COVID-19. From nearly 1.3 million cars produced in 2019, the country halved its production to around 690 thousand cars in 2020. Reduced consumer demand and halted production due to movement restrictions tied back Indonesian car sales until February 2021.

                  Luxury Goods Tax Relief Enabled Recovery of the Automotive Industry

                  The Indonesian government imposes a luxury goods tax (Indonesian: Pajak Penjualan atas Barang Mewah (PPnBM)) on vehicles based on engine displacement and body type. With an exemption of low-cost and energy-efficient cars, such as Toyota Agya or Honda Brio Satya, automobile sales are charged 10-125% of tax percentage.

                  The PPnBM was first relieved in early March 2021 for sales of new cars with an engine capacity of less than 1,500 cc. The incentive targets the automotive sector and related industries, which contributed 10.16% of the country’s GDP and employed more than 1.5 million people in 2018.

                  The original plan stated a 100% government support of the tax payment from March to May, 50% from June to August, and 25% from September to November. In June, the government extended the relief to fully bear the tax on sales of small cars until August and half of the tax on new purchases made from September to December. The latest extension of the tax relief, announced in September, will be in place until the year-end. The government also allowed a 25%-50% tax discount for cars of more than 1,500cc to 2,500cc capacity.

                  Since the initial implementation of the policy, sales in March rose to 84,910 units, marking a growth of 73% month-on-month (MoM) and 10.5% year-on-year (YoY). This remarkable jump slightly dwindled throughout the second and third quarter. However, YoY growth was sustained at a high level, significantly at 1443.6% in May.Graph showing Indonesia automotive sales

                  In August, the Indonesian automobile manufacturers association (GAIKINDO) reported total national car sales of 83,819 units, reaching close to the country’s pre-pandemic level of monthly sales volume. Cumulatively from January-August 2021, retail car sales reached a total of 545,424 units, equivalent to a 68% growth compared to last year, signifying a positive consumer response to the tax incentive.

                  Expansive Production Meets Domestic Demand and Exports

                  The jump in demands allowed car production to increase in the same manner. Despite increased movement restrictions from May due to a surge in COVID cases, the production results showed positive YoY growth. As the country managed to subdue its infection rates from August, a strong bounce back in production was visible in the month’s production result. Production from January-August marked a 65.8% increase YoY.

                  Graph showing Indonesia automotive production

                  From January-August 2021, the 4×2 passenger cars production benefit heavily from the tax incentive, recording a 70.4% YoY growth compared to 2020. Meanwhile, the production of 4×4 passenger cars, which receives a 25% discount in PPnBM, has not been equally fruitful. However, comparing with August 2020, 4×4 production in August 2021 has shown a significant increase YoY.

                  Indonesian Automotive production comparison chart

                  There’s also a noticeable growth of 64.3% in the Affordable Energy Saving Cars 4×2 category, originally already free from the luxury tax. As the government push for more environmental-friendly solutions in the domestic automotive industry, Energy Saving Cars are expected to meet with elevated demand in the near future.

                  Challenges Remain on the Road to Recovery

                  Automotive sales during the last quarter of the year have been historically the most lucrative. With generous governmental support, the industry could expect to reach 1 million units in production and 800 thousand in sales. However, there are challenges to surpass in order to realise this potential.

                  Since its introduction in March 2021, the tax incentive has helped boosted domestic car purchases, with its subsequent extensions considered to have further accelerated the recovery of the automotive industry. The industry welcomes positive projections toward the end of 2021. However, the current global pandemic and semiconductor shortage may challenge the nation on its road to recovery.

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                    Indonesia Releases Draft of New Prioritized Investment List

                    In January 2021, Indonesia’s government drafted a new investment target list, aiming to boost investments in certain industries.


                    Jakarta city view


                    The existing list, released in 2016, categorizes industries into three levels. Those that are open to investment (priority list), those that are closed to investment and lastly those who are open, but with regulations. Under the new list, Indonesia have added one additional type of investment level, which requires a partnership with an Indonesian SME. Further, the new list loses the investment requirement as more industries are put into the prioritized category. Therefore, Indonesia is bumping up the incentives for foreign investments to Indonesia, as there is less restrictions and required conditions.

                    For a business field to be defined as a ‘prioritized’, it must meet the following criteria:

                    Criteria for Indonesia prioritized businesses

                    Investments into business sectors that are periodized are eligible for both fiscal and non-fiscal incentives. Fiscal incentives include (amongst others) tax holidays, allowances and import duty exemptions, while non-fiscal incentives include (amongst others) ease of attaining business licenses and work permits. As a result of the lucrative incentives, more high-tech and innovative investments to Indonesia could improve the competitiveness of Indonesia’s position on the global market. Further, as the list prioritize labour-intensive investments, there is a great opportunity for foreign investors looking for cheaper labour costs within the manufacturing sector.

                    In conclusion, Indonesia’s new list aims to attract more foreign investments to the country. With bigger foreign capital flow into Indonesia, the employment rate and economic performance will be improved. In addition, high-tech and innovation investment might scale up Indonesia’s production output across different industries in the longer perspective. For foreign investors, the updated investment list provides them with substantial opportunities under a more friendly and stable investment environment. As a result, this could be a win-win outcome for both Indonesia and foreign businesses.

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