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Sai Tunuguntla
Partner & Managing Director
Singapore
We recently hosted the inaugural Indonesia Leadership Forum in Jakarta, where we brought together an eclectic mix of business leaders from diverse industries, to discuss how dominant parts of Indonesian industry can pivot from a commodity-centric model to a higher value product or services business.
Indonesia’s growth potential
Indonesia GDP has been growing at 3.1% CAGR over the last five years amidst the weakening global economy. To sustain and accelerate growth, the new government has launched five priority initiatives to strengthen the rupiah and assure quality in commodities and infrastructure.
Figure 1: Five priority initiatives to raise GDP
While Indonesia’s GDP growth is slightly below ASEAN (ex-Indonesia)’s 4.7% , China’s 4.9%, and India’s 7.2%, Indonesia is riding strong tailwinds into 2025 (Figure 2).
Figure 2: Strong tailwinds provide room for economic growth
According to our survey of more than 90 supply chain and procurement leaders in APAC, Indonesia was ranked on par with Vietnam as the choice of ASEAN destination for shifting portions of sourcing from China.
Also, Indonesia’s internet penetration rate stood high at 78% of the total population – creating business prospects and job opportunities in the new digital economy encompassing Fintech, e-Commerce and e-health. (Figure 3)
Figure 3: Rapid expansion of Indonesia’s digital landscape
Last but not least, Indonesia has recently invested in both physical and digital infrastructure projects, which are set to fuel the rise of its digital economy, and pave the way for a more efficient, competitive and sustainable future for manufacturing (Figure 4),
Figure 4: Digital economy growth underpinned by physical and digital infrastructure
However, unsolved structural economic problems still hold back Indonesia's development. There needs to be collaboration between the public and private sectors to increase the quality of labor in the market, set clear regulations and policies, and transform businesses with technology. (Figure 5)
Figure 5: Five key structural economic challenges in Indonesia
For example, currently both Indonesia's exports and FDI is very heavily weighted towards commodities, which makes it much more vulnerable to business cycles.
Figure 6: Indonesia export is dominated by commodity-based products with similar FDI patterns
Navigating the path to sustainable growth
Pak Fauzi Ichsan, Chairman of the Board of Indonesia Financial Group and Board of Commissioners of PT Unilever Indonesia Tbk delivered the keynote speech on “The State of the Indonesian Industry, key opportunities and challenges”. He shared that Indonesia’ economy is expected to grow at a steady pace in the coming years at 5.1%, making it one of the fastest-growing in the G20. But he also highlighted that this rate is deemed insufficient to significantly support its middle class - the majority of the local population. This is especially the case for populations outside of Java, as the wages do not reflect the living costs in the region. Legal uncertainty and inefficient execution were also highlighted as major barriers to growth, as legal delays can impede project progress and investor confidence. Click here to download the full presentation deck.
The event included two panel discussions focusing on the key themes below (Figure 7).
Figure 7: Key themes for sustained growth
Four distinguished industry leaders and practitioners joined the first panel discussion, moderated by Sai Tunuguntla, Partner & Managing Director, AlixPartners SEA leader of Enterprise Performance Improvement and APAC TMT. The panelists were:
- Pak Roy Kosasih (President Director, IBM Indonesia)
- Pak Muhammad Sofyan (CEO, ISS Indonesia)
- Pak Dilip Mistry (CEO of SRX and Sinarmas Digital Ventures), and
- Pak Lim Lian Hoon (Partner and Managing Director, Asia leader of Turnaround & Restructuring practice at AlixPartners)
To growth in the new economy areas, the panel deliberated on the need for the 3Cs - Confidence (both at national and individual levels), Competencies, and Culture to innovate / accept failures as part of it. Competencies cannot be built through simple trainings or CSR initiatives, but rather requires a deliberate plan at scale to build a million plus ready workforce in commercially relevant areas such as AI. Finally, to attract multinationals and FDI in the new growth areas, the panel felt the need for more flexible labor policies, regulatory policy continuity, and establishing a broader ecosystem (particularly, with more advance manufacturing).
The second panel was moderated by Patrick Bance, Partner and Managing Director of Turnaround & Restructuring Practice at AlixPartners, who was joined by four distinguished panelists:
- Wijayanto Samirin (Member of Board of Commissioners at Indosat Ooredoo)
- Manish Kasliwal (President Director at American Towers Indonesia)
- Kiagus Yullyan (CAO at Indonesia Financial Group) and,
- Reshmi Khurana (Partner and Managing Director of Risk Advisory at AlixPartners).
The perception of the current business environment was felt to be similar to Jakarta traffic - manageable but challenging! The panel touched on the unique challenges foreign investors face in Indonesia, where business, bureaucracy, and politics are closely intertwined. The panel highlighted the need for foreign investors to understand local demands and governance structures, which can vary significantly between regions. They emphasized the importance of balancing compliance with business risks and finding ways to manage these challenges effectively. To unlock the full potential, certain fundamental issues such as corruption and legal inconsistencies, need to be addressed.
Conclusion
Indonesia has the highest GDP growth after India in the G20. Significant opportunities exist for companies that make the deliberate business / operating model shifts to new economy areas, build capabilities at scale, and strengthen the muscle to capitalize on the uncertainties.
Read our insights from the recent Malaysia Leadership Forum: