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Indonesia

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As the largest economy in Southeast Asia, Indonesia’s numbers are impressive. An archipelago of more than 17,000 islands populated by 300 ethnic groups, Indonesia is the fourth most populous nation in the world, the eighth largest economy in purchasing power parity (PPP) terms, and a member of the G20 forum of major economies.

Its economy has charted an impressive growth trajectory since the 1997 Asian Financial Crisis. Indonesia’s gross national income (GNI) per capita has risen from USD 560 in 2000 to USD 3,374 in 2015. Until 2014, GDP growth averaged over 5% per annum, contributing to a reduction in poverty, which fell from 24% in 1999 to 11.4% in 2013. Growth has slowed since 2014. This indicates that policy reforms are required for inclusive economic development.

Indonesia has an expanding middle class and large young population equipped with considerable spending power. With the median age of 30, Indonesia’s demographics underpin the rapid growth that is expected to continue over the next two decades, propelling it to the seventh largest economy in the world by 2030.

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Indonesia’s Fact File

World Giving Index Rank

2016

7 22 in 2015

75%giving money
50%volunteering time
43%helping a stranger

Population

2016

258 million

GDP (PPP)

2016

3.03 trillion World Rank 8

Poverty

2014

11.3%

Per capita GDP (PPP)

2016

USD 11,720 World Rank 96

Global Competitiveness Index

2016

41 37 in 2015

Number of Millionaires

2015

98,000 0.03% of population

Source: CIA, Charities Aid Foundation (CAF, 2016), Credit Suisse (2016), OECD (2016), World Economic Forum (WEF, 2016), World Bank (2017)

Economic Context for Investors

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Factors	Index Score/Rank	Description
GDP Growth 2016	Index Score/Rank 4.9%	The economy advanced 4.9% in 2016, higher than the 4.8% GDP growth in 2015. It is expected to grow at 5.1% in 2017.
Governance 2015	Index Score/Rank -0.3	Indonesia ranked above 42% of 215 countries and territories in the 2015 World Bank’s Worldwide Governance Indicators.
Consumer Market 2015	Index Score/Rank USD 1,350 billion	Consumer spending increased by 2.6% from 2014 to 2015. Rapid urbanisation has fuelled an increase in incomes and spending power.
Labour Force 2016	Index Score/Rank 127 million	Indonesia’s labour force increased by 1.3% from 125 million in 2015 to 127 million in 2016.
Infrastructure 2016	Index Score/Rank 4.2	Indonesia ranked 60 out of 138 countries for infrastructure in the 2016 WEF’s Global Competitiveness ranking. The government has put in place a robust institutional framework for infrastructure investment, with 13 economic policies for tax deregulation and increasing competitiveness.
Financial Access 2014	Index Score/Rank 36% of population	There was an 83% increase in access to formal banking in three years from 19.6% in 2011 to 35.9% in 2014.
Digital Access 2015	Index Score/Rank 22% of the population	Internet penetration increased by 28% from 2014 to 2015. Number of smartphone users in Indonesia is expected to rise from 55 million in 2015 to 92 million in 2019. Indonesia has 3rd largest smartphone market in Asia.
Ease of Doing Business 2016	Index Score/Rank 91/190	Indonesia moved up from 106 in 2015 to 91 in 2016 in the Ease of Doing Business ranking. Indonesia has instituted several policies and incentives to climb up to rank 40 by 2017.

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SDG Dashboard

Indonesia’s economic growth has not been entirely equitable. Only 20% of Indonesians have benefited from the increase in economic wealth during the last decade, while 80% or more than 200 million people have not. Consequently, the key themes of focus in the country, as highlighted by the gaps in the SDG dashboard, are reducing income inequality, increasing access to education, ensuring health and sanitation, boosting the productivity of low-income workers, and protecting the environment.

In recent years Indonesia’s environmental sustainability has become a matter of global concern. Regular burning of forests to clear land for palm oil plantations has destroyed over 2 million hectares of rainforest, besides causing catastrophic air population in neighbouring countries.

Source: sdgindex.org (2016)

Government Focus on Development Gaps

Focus Area	SDG Goals	Gap	Government Focus
Agriculture	SDG Goals	Gap 13.6% of Indonesia’s GDP comes from agriculture. The crop production index rose slightly from 135.6 in 2012 to 136.6 in 2013.	Government Focus The Master Strategy on Agricultural Development focuses on increasing yield for smallholder farmers. The National Programme for Community Empowerment (PNPM Mandiri) focuses on sustainable farming and food security.
Climate action	SDG Goals	Gap Indonesia ranked 36 out of 173 countries in the 2016 World Risk Index. More than 80% of its provinces are highly prone to natural disasters. Burning forests to clear land for palm oil cultivation makes Indonesia the third-largest greenhouse gas (GHG) emitter, after the US and China.	Government Focus Indonesia’s Intended Nationally Determined Contribution (INDC) goal is to reduce greenhouse gas (GHG) emissions by 26% by 2020. A 2016 moratorium on clearing peatland and a resolution to restore 2 million hectares of degraded peatlands could reduce Indonesia’s carbon dioxide emissions annually by 5.5–7.8 gigatonnes by 2030.
Education	SDG Goals	Gap Despite nearly 100% primary school enrolment (2014), more than 5.3 million children were out of school as of 2016.	Government Focus The Ministry of Education and Culture has established the Education Sector Analytical and Capacity Development Partnership (ACDP) to promote education policy dialogue and facilitate institutional and organisational reform.
Energy access	SDG Goals	Gap 96% of the population has access to electricity. Remote regions and islands, however, depend on subsidised, high-cost diesel fuel.	Government Focus Indonesia’s goal is to increase the share of renewable energy in its total energy mix to 23% by 2025. The Sustainable Energy for Remote Indonesian Grids (SERIG) project, for instance, is accelerating the deployment of renewable energy in remote regions.
Healthcare, water and sanitation	SDG Goals	Gap The health insurance ecosystem is fragmented, with private insurance for some, state support for the poorest, and NGOs for the rest. In 2015, only 61% of the population had access to improved sanitation.	Government Focus The government-supported Universal Health Coverage system seeks to provide all citizens and residents with access to basic health coverage by the end of 2018. The National Rural Water Supply and Sanitation Programme (PAMSIMAS) aims to improve existing facilities and expands access through a community based approach.
Small and medium-sized enterprise (SME) growth	SDG Goals	Gap Indonesia’s SMEs contributed 60.6% of Indonesia’s GDP in 2015. Bank loans, however, made up only 6% of SME funding in the same year.	Government Focus Under the Kredit Usaha Rakyat (KUR) scheme, the Ministry of Finance provides insurance for 70% of loans given to SMEs, with banks taking on the remaining 30% of risk.
Social security	SDG Goals	Gap 60% of Indonesian workers belong to the informal sector, where social services are limited.	Government Focus The National Social Security System has set up two not-for-profit administering bodies to cover social services including healthcare, work-injury, survivors’ benefits, provident fund, and pensions.

Social Economy

The social economy in Indonesia is rapidly growing with the strong backing of international and local impact investors and hands-on support from network builders.

There are 3000 NGOs and 454 SEs in Indonesia.

Category	Factor	Description
SPOs	Factor Legislative environment	The process of setting up enterprises is complicated and long drawn, with no specific legal structures for SEs.
SPOs	Factor Government support for SEs	Government has actively supported SEs in sectors such as financial access.
SPOs	Factor SEs across sectors	Aligned to SDGs, SEs are found across focus sectors such as agriculture, fishery, healthcare, fintech, and education.
SPOs	Factor Presence, size, and maturity of SEs	There were 454 organisations with a social mission as of 2015. Most SEs need support and capital to become profitable enough to attract mainstream financial market. Ruma, BinaSwadaya, East Bali Cashews and YCAB are prominent SEs that have scaled.
Investors	Factor Philanthropic contributions	A rich tradition of religious giving, complemented by innovative approaches from family foundations is providing a strong framework for grant-funding.
Investors	Factor Presence of social investors	Indonesia is seen as the most attractive social investing market in Southeast Asia. 30 investors are already present and 25 are setting up offices in the country. Volumes of investing are low due to the lack of an investable pipeline.
Investors	Factor Corporate sector	Despite the CSR mandate for extractive industries, local corporate contribution is basic. MNCs have been predominant grant funders.
Enablers	Factor Incubators, accelerators, and capacity-builders	Good presence of several enablers: incubators (INOTEK, Kinara Indonesia), accelerators (Google Launchpad, UnLtd Indonesia, Endeavor), competitions (Danone Young Social Entrepreneur, DBS-NUS award), corporate pro-bono programmes (BCG, PwC).
Enablers	Factor Networks and platforms	Ashoka, ANGIN, AVPN, British Council, East Ventures and Sankalp Asia conduct regular meetings and workshops.
Enablers	Factor Knowledge and research	ANGIN, British Council, the Lien Centre for Social Innovation, UNDP and UnLtd Indonesia regularly publish research and reports.
Enablers	Factor Partnerships	Social enterprise weekends hosted by ANGIN and East Ventures and the partnership between LGT IV and GEPI are examples of grant funders and impact investors coming together for co-investing models, mentorship and support.
Enablers	Factor Impact Measurement	Most social investors measure operational and financial metrics, but social KPIs are not measured, due to the early stage of SEs. There is a lack of organisations to support assessments.