Businesses wanting to establish trade links with Indonesia need to be forward thinking, advises trade credit insurer Atradius.
As the largest economy in Southeast Asia, Indonesia is an attractive proposition for UK exporters thanks to its large, growing population and strong domestic consumption. However, export expert Atradius warns businesses must be committed to long-term relationships in order to maximise the potential opportunities of trading with Indonesia.
In its latest Indonesia Country Report, Atradius details the economy only experienced a mild recession in 2020 with GDP shrinking 2.1%. This is partly due to the fact the economy is rather closed with exports accounting for just 20% of GDP, making Indonesia less susceptible to global trade downturns. The pandemic impact saw Indonesian imports decreasing 14% in 2020 with exports down 6%. Looking ahead, Atradius expects the Indonesian economy to rebound by 4.7% in 2021, contingent on the gradual easing of mobility restrictions and effective vaccine rollout. Atradius highlights that Indonesia’s strategy of vaccinating working-age people first could accelerate economic rebound over the course of the year. Atradius expects private consumption and real-fixed investment to increase 3.3% and 5.3% respectively in 2021. Meanwhile, imports are expected to rise around 5% and exports by just over 8% this year.
The Atradius report reveals agriculture has been one of Indonesia’s most resilient sectors amidst the coronavirus pandemic with rising output and exports in 2020. The chemicals and ICT industries have also proved to be rather robust with demand for ICT products rebounding since H2 of 2020 due to an increase in projects supplying hardware and other IT infrastructure. In addition, ICT project wholesalers and suppliers have retained the level of revenues and margins recorded in 2019. Atradius warns the construction sector has struggled with pandemic-induced project delays and postponements but a rebound is expected to accelerate in 2021 across all segments while the energy and mining industries has seen a sharp decrease in investments due to the cancellation of many projects. The market potential in the automotive sector remains strong in Indonesia, albeit a comprehensive recovery is dependent on the rebound of other industries and rising household purchasing power; the latter of which plays a pivotal role for the consumer durables industry. Finally, payment delays and insolvencies have increased in tourism-related service segments with the 2021 outlook dependent on the path of the pandemic.
Atradius industries performance forecast:
- Good outlook: Financial Services
- Fair outlook: Agriculture, chemicals/pharma, construction, consumer durables, electronics/ICT, food, machines/engineering
- Poor outlook: Automotive/transport, metals, mining, oil/gas, services, steel, textiles
Tanya Giles, head of SME at Atradius UK, commented: “As one of the world’s fastest developing countries, Indonesia has a burgeoning consumer market and growing middle class eager for foreign goods and services. As a result, Indonesia offers a wealth of business opportunities but, crucially, only if potential suppliers approach this promising market in the right way. There are distinct business differences between the domestic and Indonesian market and complex bureaucracy to negotiate. However, forward thinking, a long-term commitment and understanding of the market characteristics and cultural nuances as well as suitable precautions to safeguard sales will ensure businesses are best equipped to maximise the potential opportunities for profitable trade.”