Overview
According to Reuters, millions of working to middle class Indonesians have become poorer, largely due to an increase in layoffs and a drop in the number of job opportunities since the pandemic. This trend bodes ill for the outlook Indonesia as Southeast Asia’s biggest economy where household consumption accounts for over half of gross domestic product.
The government classifies those who spend between $132 to $643 a month as middle class, based on a World Bank criteria. This group is key to economic growth as their spending accounts for nearly 40% of private consumption, and more than 80% if combined with the aspiring middle class, who spend $57 to $132. The size of the middle class, however, has dropped from 21.5% of the total population in 2019 to 17.1% in 2024, according to official data released last month.
Despite Indonesia’s steady annual growth rate of around 5% since 2022, the shrinking middle class is becoming a concern for future growth. The government may face lower tax revenues and increased subsidy demands. A key driver of this decline is the shifting labour market, where foreign investment has focused on less labour-intensive industries like mining due to technological advancements. Additionally, rising competition from lower-cost countries like China, particularly in the textile sector, has caused significant layoffs, with the industry, according to the textile association seeing its worst downturn in a decade.
How the new government addresses the shrinking middle class and allocates funds for welfare programs, while managing the large debts set to mature next year, will be pivotal in shaping Indonesia’s future economic trajectory.
Latest Update
- Sanwa Musen, Subang Smartpolitan’s Tenant
- PT Sanwa Musen Indonesia, a subsidiary of Sanwa Musen , Ltd. Japan, became the first operating tenant in the Subang Smartpolitan Industrial Park who is developing an industrial park of 2,717 Ha.
- Sanwa Musen Indonesia was previously located in Purwakarta on a rental facility. In 2021 the company signed an MOU with Subang Smartpolitan to buy 2 Hectare land and build a factory in Subang Smartpolitan because of strategic location – proximity of relocation from Purwakarta to Subang, easy access to Patimban Port and Kertajati International Airport, as well as trust to the developer of good reputation and experience in the industrial park business.
- The process of land purchase to construction preparation took around two Land was delivered in July 2023. Subang Smartpolitan facilitated this through a one-stop service, providing direct support from the pre-investment phase to business operations. The inauguration of the new factory was held on September 18, 2024. The company invested US$ 10 million to produce 3 million-3.5 million units of electronic products per month.
- Since the starting production of electronic components such as transformers, line filters, and choke coils in 1996, Sanwa Musen Indonesia has brought the technological solutions to the electronics industry. The factory will meet domestic and foreign market demand, especially for the Panasonic Group. Sanwa Musen Indonesia is targeting a mass production in January 2025 with an initial production capacity of 50 percent.
- MG Expresses Interest in Building Battery Factory in Indonesia
- CEO of Morris Garrages (MG) Motor Indonesia, He Guowei, states that the company will invest in the development of battery factory in Indonesia to produce a high quality vehicle in the market.
- Head of Marketing of MG Motors Indonesia, Muhammad Irvan emphasizes that the decision to build a battery factory will involve long-term, continuous internal discussions; MG Motor global however also shares the same desire, and the future factory may operate under the MG Motor, Wuling, or SAIC brand.
- Currently, MG Motor Indonesia already has an assembly plant at the facility owned by its parent company, SAIC Motor. The facility is integrated with Wuling Motors, which is also a subsidiary of SAIC, located in Cikarang, West Java. The current factory is said to be able to produce up to 100,000 units per year.
- Pertamina Collaborates with Sojitz for Carbon Emission Reduction
- PT Pertamina Patra Niaga, a Subholding Commercial & Trading from PT Pertamina collaborates with Sojitz Indonesia in an effort to reduce carbon emissions through the use of the company’s environmentally friendly Hydrotreated Vegetable Oil (HVO) fuel product.
- HVO has the potential to reduce carbon emissions by 85% and reduce greenhouse gas emissions by 90%, and can be directly used in diesel engines without modification, thus supporting the clean energy transition especially in the industrial sector.
- The HVO produced at the Green Refinery Cilacap has received International Sustainability and Carbon Certification (ISCC) certification and has made its first distribution to PT Sojitz for testing on PT Mitsubishi Heavy Industries Engine System diesel generator engines.
- In addition to HVO, Pertamina Patra Niaga and PT Sojitz Indonesia are also exploring various other renewable energy development potentials, including the provision of raw materials such as UCO (Used Cooking Oil) and POME (Palm Oil Mill Effluent) and carbon credits, as part of Sojitz commitment to supporting renewable energy.
- Sumitomo, DSN Group Launch Wood Pellet Manufacturing in Central Java
- Japanese firm Sumitomo Forestry Co., Ltd., through its joint venture PT Biomassa Lestari Nusantara (BLN), has officially commenced operations of its first wood pellet manufacturing plant in Boyolali, Central The joint venture, formed in 2023 with PT Dharma Energi Investama, an energy subsidiary of palm oil, timber and renewable energy firm PT Dharma Satya Nusantara Tbk (DSN Group) aims to produce wood pellets for biomass power generation, primarily for the Japanese market.
- The plant’s initial production capacity is set at 60,000 tons per year, with plans to expand to 120,000 tons annually by 2026. The wood pellets will be manufactured using wood waste and small-diameter logs sourced from local wood processing plants and community Sumitomo Forestry Group will handle quality control and sales, while DSN Group will manage the manufacturing and raw material collection. The wood pellets will be supplied to biomass power generation plants, helping meet the growing demand for sustainable energy.
- In response to global fuel supply disruptions, including rising wood pellet prices, the joint venture aims to ensure a stable, long-term supply of biomass This initiative also supports Japan’s Sixth Strategic Energy Plan, which aims to increase the biomass power generation ratio to 5% by 2030.
- Official 8th Groundbreaking at Nusantara, New Capital City Project
- On September 25, 2024, the 8th groundbreaking for 5 projects consisting of domestic and foreign investment. The 5 projects are:
- PT Plataran Bogasari, to build a Venue, with an investment of IDR 15 billion;
- PT Prima Hotel Manajemen Indonesia, for a 3-star hotel with an investment of IDR 100 billion;
- EAS Property from Australia, to build Australian International School (AIS), on an area of 7,900 m2 and a building area of 10,000 m2 with an investment of IDR 150 billion. The school is planned to accommodate up to 750 students, starting from the preschool level at age 3 to grade 12 in high school;
- Magnum Estate International from Russia, with an investment of IDR 300 billion is building Magnum Resort Nusantara, a luxurious resort situated on a 3 Ha of land;
- And Delonix Bravo from China, to build a mix use area with a project name of Delonix Nusantara, in a 2.4 Ha of land for property developments, ranging from hotels with 200 rooms, service apartments, shopping centers, offices, and sports and fitness centers, with a total investment of IDR 500 billion.
- To date, officials stated that the amount of investment in Nusantara has reached IDR 53.5 trillion excluding local investment.
- On September 25, 2024, the 8th groundbreaking for 5 projects consisting of domestic and foreign investment. The 5 projects are:
- Raffles Medical Group Interest Investing in Indonesia
- Established in 1976 as one of Singapore’s largest private integrated healthcare provider, Raffles Medical Group has expressed interest in investing in Indonesia. Minister of Investment/Head of BKPM, Rosan Roeslani has met the company’s leaders in Singapore on September 19, 2024.
- Raffles Medical Group expresses their serious interest to invest in healthcare sector and hospital in Indonesia, including creating skill improvement program for doctors, nurses, and hospital managers.
- Indonesia’s healthcare sector offers a massive opportunity. As mentioned in Insight Report W2 May 2024, Indonesia’s average life expectancy is 72 years, with healthcare spending of $130 or IDR 950 million per person annually. In comparison, Malaysia’s is 76 years with $430 or IDR 6.450 million per person, and Singapore’s is 84 years with $3,000 or IDR 45 million. If Indonesia’s healthcare system matched Malaysia’s efficiency, the market could reach $81 billion or IDR 1,215 trillion, and extending life expectancy to 84 years within a decade could increase spending to $3,000 per person, potentially growing the healthcare sector to over $ 800 billion or IDR 12,000 trillion.
- The government will follow-up of the initial talk to ensure the investment plan realization to bring added value to the Indonesian people.
- Ground-Breaking of HPAL Neo Energy
- On September 14, 2024, PT Anugrah Neo Energy Materials held a ground-breaking ceremony, which was attended by Minister Airlangga Hartanto, for the construction of High-Pressure Acid Leaching (HPAL) smelter. The smelter, targeting operation in 2 years, is a National Strategic Project, will process low-grade nickel ore or limonite into Mixed Hydroxide Precipitate (MHP) as a precursor material for EV battery cathodes with capacity up to 120 thousand MT per year and utilize 100% green energy from hydro and solar power.
- The smelter will be built in the Neo Energy Morowali Industrial Estate (NEMIE), developed by a subsidiary of Neo Energy Materials, who was previously listed on the SGX Catalist Board as Silkroad The company was successfully delisted from the SGX in November 2022 and has embraced the rebranding to Neo Energy Materials to encompass its goal to be a vertically-integrated sustainable producer of new energy materials. NEMIE obtained its IUKI in August 2024, with focus for green energy-based nickel processing.
- Besides the HPAL development project, Neo Energy through its CSR program is providing scholarships for Indonesian students to continue their studies at Beijing University of Chemical Technology.
- International Funding for Indonesia’s Renewable Energy
- Indonesia has just received funding from German investment and development bank Kreditanstalt für Wiederaufbau (KfW) of around IDR 7.7 trillion (US$491.4 million), mainly for renewable energy developments.
- The funding that was provided through the Just Energy Transition Partnership (JETP) Indonesia, one of which will be used to fund the Ijen Geothermal project, East Java, owned by PT Medco Energi Internasional Tbk.
- In addition, the funding will also be used to finance the Hijaunesia I and II projects in the form of the construction of Solar Power Plants and Wind Power Plants by PLN; Floating Solar PV is also a possibility that can be addressed for the JETP program.
- In addition to the KfW Bank, the Asian Development Bank (ADB) will disburse its funds for Indonesia. Discussion is ongoing with several obstacles identified. ADB views that the commitment of the Indonesian government is not strong enough to carry out the energy transition, especially through the early retirement of coal-fired power plants.
- KITB Nominated for Creative and Innovative Brand
- Through their new innovation in KITB Solution Hub, KITB was recognized at the Marketeers Editor’s Choice Award (MECA) 2024, an award event for creative and innovative brands, by winning “Innovative Solution in Industrial Estate of the Year”
- KITB Solution Hub is designed to facilitate investors’ ease of access to various services, facilities and important information in a modern sustainable Industrial Park. The platform offers a comprehensive range of services, including a sales force with technical expertise in licensing and government incentives, to tenant services from energy to logistics and operational support.
- Investors interested in investing in KITB can also take advantage of advanced features such as Virtual Tours with aerial views and live views of various industrial areas, including Small Factory Buildings (SFB) and commercial This allows investors to get a comprehensive overview of the available infrastructure without having to come directly to the site.
- Anhui Guangxin Agrichemical Potential Investment in Maloy SEZ
- Head of the One-Stop Investment and Integrated Service Office (DPMPTSP) of East Kutai Regency, Darsafani revealed that Chinese investors will invest in the Maloy SEZ
- PT Anhui Guangxin Agrichemical has visited the Maloy SEZ location At first visit, PT Anhui’s goal was to map out facilities and infrastructure in Maloy SEZ, from clean water, electricity, road and port infrastructure.
- At the second visit, PT Anhui made an offer to lease the Maloy SEZ land; the rental rate of the land offered by the developer was IDR 1,550 /m2. PT Anhui negotiated at IDR 600/m2, which was considered too low from developer’s perspective.
- Refer to Insight Report W4 June 2024, PT Anhui plans to build a chemical fertilizer factory in the Maloy SEZ covering 1,000 Ha of land. The area is divided equally between community-owned and government-owned land. However, Darsafani emphasized the need to assess the investor’s seriousness, offering only 300 Ha of land at the initial stage.
- On the regulatory front, the Maloy SEZ has obtained permits from the Ministries of Maritime Affairs and Fisheries, as well as the Environment and The developer is expecting final permit from the Ministry of Transportation to support investor operations.
- Potential Development of Cigarette Industrial Park in East Java
- Malang Government is planning a Cigarette-based Industrial Park to prevent illegal cigarette productions in the region, given that Malang hosts a lot of cigarette factories.
- The local government is now conducting a mock study in Kudus, a Cigarette Industrial Park called Kawasan Industri Hasil Tembakau (KIHT), at Megawon Village, Kudus Regency. The current capacity of KIHT is 14 warehouses from the previous 11 warehouses and all of them are being rented to small cigarette businesses, with many more on the waiting list to enter the Industrial Park.
- Government of Malang Regency gives its full support for the licensing of the cigarette industry, giving ease for cigarette industry players to build factories in the designated area.
- PGN Strategic Move to Import LNG
- President Director of PGN, Arief S. Handoko, stated that the company will open the option to import LNG cargoes if the pipeline gas deficit from the Corridor Block cannot be overcome from domestic potential.
- PGN revealed that the gas allocation from the Corridor Block, managed by Medco E&P Grissik Ltd. (MEPG), is expected to drop to 129 billion British thermal units per day (BBtud) by 2028. This figure is lower than the amended Gas Sales and Purchase Agreement (GSPA) signed on December 2023 for the period 2024-2028, where the allocation reached around 410 BBtud. To overcome this deficit, PGN is opening up opportunities to import LNG. The LNG price for Corridor Block is US$ 5.44 / mmbtu.
- PGN, together with Upstream Oil and Gas Authorities, are exploring new LNG procurement from the Bontang, Tangguh, and Donggi Senoro plants, as well as extending existing pipeline gas contracts from PetroChina Jabung, Duyung Block, and Medco South Sumatra. They are also exploring the potential of oil and gas blocks in East Java, along with the construction of the Cirebon-Semarang Phase II transmission pipeline project. If domestic supply can’t fulfill the growing demand in the country, import will be accelerated.
- National Data Center in Cikarang, Batam, and Nusantara
- The government of Indonesia is planning the construction of three National Data Centers (NDC) in Cikarang, Batam, and Nusantara to strengthen national digital
- NDC 1, which is currently located in an area of 15,944 m2 in Greenland International Industrial Centre (GIIC) – Cikarang, has reached 83% completion and is targeted to be operational by The facility will be built to almost reach tier-4 system capability, with a capacity of 20 MW, advanced data backup features, such as mirroring and cloud. NDC 1’s funding of IDR 2.7 trillion was obtained from the French government loan, but there are still budget shortfalls that challenge the continuity of the project, costs related to internet network, electricity, and environmental management are also an issue.
- NDC 2, in Batam has entered the phase I land preparation stage, although there are land-related constraints due to objections of local community regarding the rainwater discharge, the government is still working with the developer of the industrial park to solve the problem and in preparation for phase II Funding is also an issue for the project completion besides the social challenges.
- NDC 3, in Nusantara new capital The authority is currently preparing the location for the data center. The Indonesian government plans to build NDC 2 and 3 simultaneously so that by 2026, Indonesia will have 3 NDCs.
REFERENCES
- Skylight Analytics Hub
- https://www.reuters.com/markets/asia/indonesias-dwindling-middle-class-seen-dimming- economic-outlook-2024-09-11/
- https://industri.kontan.co.id/news/sanwa-musen-resmikan-pabrik-baru-di-subang-smartpolitan- senilai-rp-160-miliar
- https://www.liputan6.com/bisnis/read/5154903/raksasa-elektronik-sanwa-musen-bakal-relokasi- pabrik-ke-subang-smartpolitan
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- https://www.antaranews.com/berita/4323651/pertamina-gandeng-pt-sojitz-indonesia-kurangi- emisi-karbon-lewat-hvo
- https://dsn.co.id/press-release/dsng-and-sumitomo-forestry-commissioned-the-first-wood- pellet-plant-in-boyolali/
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