Posted: June 3, 2013 |  AUTHOR: KEN FOX | CONTACT ME

 

This blog post focuses on Indonesia. It reflects, in part, learning and information gained from attending the annual Asia/Pacific Business Outlook Conference held at the University of Southern California in Los Angeles, California, USA (April 8-9, 2013). At the conference I met with David Gossack, Counselor for Commercial Affairs, U.S. Commercial Service, based in Jakarta, Indonesia. Highlights from his presentation include:

The country has17,000 islands (6,000 inhabited) and 33 provinces
Population=240 million people (50% of the population is 29 years old or younger)
The 4th most populous country in the world
Growing middle class, 74 million now, est. to be 141 million by 2020 (BCG)
The third largest Democracy in the world
The largest Islamic nation in the world, 85% of the population practices Islam
2010-2012-GDP growth 6.3%, projected to be 6.2% in 2013 by the World Bank
Exports value: $199 billion (2012)
Imports value $185 billion (2012)

Java is the most populated island in Indonesia. It is the political (Jakarta, the capital is located here), geographic and economic heart of Indonesia, The population of Java is 120 million). Sumatra, with a population of about 50 million people, is the fourth largest island in the world. It offers extraordinary natural resources (oil, natural gas, hardwoods and palm oil) and abundant wildlife.

Two of Sumatra’s industries: Lumber and Palm Oil

Indonesia’s Vision for 2025-2030 includes:
1. Becoming a world top economy
2. Generating 7% (GNP) growth rate
3. Achieving a positive global brand
4. Becoming a major manufacturing hub for South East Asia

Some of the major challenges to reaching these goals:
Making the business environment appealing
Corruption
Transportation costs and improving the infrastructure
Conflicting regulations: national vs regional
A protectionist trend
Existing import quotas, especially on beef and horticulture products
A pending new import/licensing scheme

An interesting growth area in Indonesia involves aviation. Currently, The Jakarta Soekarno-Hatta International Airport is the 11th busiest in the world, handling 44 million passengers in 2012 (it was built to handle 22 million). The Indonesian Ministry of Transportation eased the rules for starting an airline in 2001. There are now 18 airlines offering regularly scheduled flights, up from 13 in 2001. Garuda is the national airline. It flies on domestic and international routes.

Demand for new commercial aircraft in Indonesia is booming. The middle class is increasing and travel by boat, ferry or bus between the 1,700 islands has become dangerous with multiple mishaps and boats sinking.

Lion Air is the largest Indonesian Airline. It started in 1999 as a low cost airline and is the country’s first private airline. In March 2012, Lion Air awarded Boeing the largest commercial aircraft order they ever received. The order included 230 aircraft, with 201 737 Max aircraft and 29 Next Generation 737 900ERs, Extended range. The total order is valued at approximately $22.4 billion at list prices. Lion Air also gave Airbus an order for 234 medium haul A320 jetliners in March 2013, worth $23.8 billion.

There are now 18 airlines in Indonesia offering regularly scheduled flights, up from 13 in 2001. Garuda recently spun off Citilink, a low cost subsidiary. Lion Air plans to launch a premium air carrier, Batik Air, later this year, with six Boeing 737s and five Boeing 787 Dreamliners. Airlines such as Air Asia from Malaysia are expanding into Indonesia. In July 2012, Air Asia bought an Indonesian low cost carrier Batavia, for $80 million.

Lion Air and Garuda Airlines have a history of safety issues. Lion Air currently flies to 72 destinations, mostly within Indonesia. Its furthest international flight is to Saudi Arabia. Lion Air has a goal to increase its international flights. Lion Air is banned from operating in European airspace by the European Commission, “after Lion Air was found to be too unsafe to conduct operations in any European state.” Garuda had also been banned from the EU but this ban was lifted in 2007. Lion Air is also now banned from flying in or to the U.S. Boeing, Airbus and air-safety experts are working with the Indonesian government and their airlines to improve aviation standards.”

Lion Air has had seven accidents since starting in 2000. The most recent occurred on April 13, 2013 when a new Boeing 737-800 crashed or fell into the ocean near the airport on the resort island of Bali. Luckily, all 101 passengers were saved, with only a few having minor injuries. Indonesian airline pilots and other local airline watchers complaints include:
Many airlines face staff shortages
Poor maintenance
Excess pilot working/flying hours
Poor infrastructure, resulting in high logistics costs.
The “system is decrepit with local radio stations still reportedly interfering with air traffic control frequencies.

Commentary
Indonesia is clearly booming population wise, with middle incomes growing and a vibrant economy. The country has been held back by corruption, lack of infrastructure planning and general government and bureaucracy inefficiencies. The Indonesian president has recognized some of these major problems over the past few years but nothing has been implemented. Commerce suffers because roads aren’t built. The country also needs more healthcare centers and improved higher education opportunities for a growing population. These reforms are needed to attract new companies and industries wanting to thrive in the country. Indonesia can exemplify a democracy but needs to get its house in order. Maybe its airlines and aviation industry will reach U.S. standards so more of us can visit this interesting country.

Resources
1. Indonesia Update/Briefing, Asia/Pacific Business Outlook Conference, University of Southern California, Los Angeles, CA USA, April 8, 2013
2. Update: Indonesia Economy slows in Q4 2012, exports weigh on outlook, Reuters, February 5, 2013
3. Growth of Indonesian Airlines Strains the Infrastructure, New York Times, August 2, 2012
4. Indonesian airiness booming, but are they safe?, The Sydney Morning Herald, August 6, 2012
5. Experts Weigh in on Indonesia’s Infrastructure Needs, Jakarta Globe, January 19, 2012

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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