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Econ Project 2. Group 4
Econ Project 2. Group 4
PROJECT II
January 7, 2024
Word count: 2195
By Group 4
In 2019, to address the pressing issues of the capital city such as pollution, overpopulation,
flooding, and to promote even economic growth nationwide, President Joko Widodo
announced a massive project worth $32 billion to relocate the capital city Jakarta from Java
Island to a new capital, Nusantara, in East Kalimantan province. Envisioning a modern and
green new capital, the Indonesian government under President Widodo's leadership is making
efforts to build high-end infrastructure to attract significant foreign investment, simultaneously
making Nusantara a hub for interactions among various ethnicities and cultures of the nation
(Vo, 2023).
Indonesia is home to 1,340 ethnic minority groups, with a total population reaching 275.5
million people (World Bank, 2022). Islam was introduced to Indonesia in the 8th century and
flourished significantly in the 13th century. To this day, Islam remains the dominant religion
in Indonesia, boasting the world's largest Muslim population of over 200 million people,
constituting nearly 90% of the nation's population and 13% of the global Muslim population
(Vme, 2023).
Vietnam and Indonesia both experiencing overall growth in GDP and GDP per capita from
2018 to 2023. While the figure of Indonesia witnessed a fluctuation, that of Vietnam increased
steadily over the years. However, Indonesia shows stronger growth: from 2018 to 2023,
witnessing an increase of $276.83 billion for GDP and an increase of $875 for GDP per capita.
Meanwhile, Vietnam only experienced a growth of $98.69 billion and $897 for GDP and GDP
per capita during the same period. This indicates an improvement in the average living
standards of the citizens in both countries.
Regarding the GDP growth rate, both countries experienced a contraction in the years 2019-
2021, especially in 2020 when Indonesia's economy sharply contracted by -2.07% due to the
severe impact of the Covid-19 pandemic. From 2021, the GDP growth of both countries has
gradually recovered. In Indonesia, the GDP for the entire year 2023 is estimated to increase to
around 5.0%, only higher than the growth rates in 2020 and 2021 respectively (cited). A similar
trend is observed in Vietnam.
Indonesia Vietnam
Figure 2.1a GDP, GDP per capita and GDP growth rate of Indonesia and Vietnam from
2018 to 2024 (World Bank, 2023).
b. Inflation rate
• The inflation rate of Indonesia during the period 2017-2021 generally experienced a
gradual decrease, especially reaching low points in the years 2020 and 2021, with 1.9%
and 1.6%, respectively. However, by 2022, the figure witnessed a significant increase,
reaching 4.2%, indicating a notable rise in the overall prices of goods and services in
the economy.
• Compared to Vietnam: Between 2018 and 2020, Indonesia maintained a rate of about
2.5-3.5%, while Vietnam experienced notable fluctuations, peaking at around 4.5% in
mid-2018 and surpassing 5% in 2020. However, in 2021, Vietnam's inflation sharply
decreased to approximately 1.5%, aligning with Indonesia's rate. From 2022 onward,
Vietnam generally had a lower inflation rate than Indonesia. In mid-2022, Indonesia's
inflation rate reached a peak of 6%, the highest during the period.
Figure 2.3 Comparision of Indonesia's and Vietnam’s inflation rate during the
period 2018-2023 (Trading economics, 2024)
As of the reporting time, the exchange rate between the Indonesian Rupiah (IDR) and the US
Dollar (USD) is: 1 IDR = 0.000065 USD. This indicates that the value of 1 Indonesian Rupiah
is very small in terms of US Dollars, which means the Indonesian Rupiah has a lower nominal
value compared to the US Dollar.
Figure 2.4 Strength of the Idonesia currency (IDR) compared to USD Chart (Xe, 2024)
d. Unemployment
Figure 2.5 Unemployment rate comparison between Vietnam and Indonesia (World Bank,
2023)
Over the past five years, Indonesia's unemployment rate has been relatively steady, ranging
between 4% to 3.5%. In comparison, Vietnam has also kept its unemployment rate low,
averaging about 2-3% (A. O'Neill, 2023). According to A. O'Neill (2023), the industry sector
accounts for around 45.7 percent of Indonesia's GDP. Due to Indonesia's quickly expanding
economy, the unemployment rate is falling, with the majority of Indonesians employed in the
service industry (including tourism, hospitality, and so on), while GDP and GDP per capita
have been gradually increasing at the same time. The progressive drop in unemployment
indicates an expanding labor market, which might indicate a more stable economic situation.
However, it is critical to recognize the social dividend and ensure that workers is appropriately
qualified to fulfill the developing economy's expectations.
e. Population growth
Vietnam and Indonesia share similarities in population trends. Both countries are experiencing
a decrease in population growth rates, aligning with global patterns observed in middle-low
income countries. Indonesia, ranked as the world's 4th most populous country, is projected to
have a growth rate of around 0.67% from 2020 to 2025 (VietnamPlus, 2023). Similarly,
Vietnam's population growth rate hovers around 0.7% (Macrotrends, n.d.-b). This shift in
population structure indicates a transition to a golden population structure, characterized by an
increasing proportion of elderly individuals and a decreasing proportion of young population.
It is estimated that the proportion of Indonesia's population over the age of 65 will rise from
6.2% in 2020 to 14.6% in 2045 (VietnamPlus, 2023). In Vietnam, this proportion is expected
to reach 14.2% by 2036 (TUOI TRE ONLINE, 2023). These demographic changes reflect the
impact of evolving incomes and declining birth rates.
Figure 2.6 Indonesia's population and growth rate from 1950 and estimated to 2100
(Macrotrends, n.d.-a)
Figure 2.7 Vietnam's population and growth rate from 1950 and estimated to 2100
(Macrotrends, n.d.-b)
According to CEIC Insights (n.d.), China is Indonesia's largest trading partner, followed by that
is United States of America, Japan, India and Malaysia. This highlights the economic
significance of China as a major trading partner for both Vietnam and Indonesia. It also
emphasizes the interdependence of economies on a global scale, illustrating how nations
strategically cultivate diverse trade partnerships to fortify their economic positions and mitigate
risks in the dynamic international market.
Figure 2.8 Indonesia Foreign Trade (CEIC Insights,n.d.)
Figure 2.9 Export and import value by country in Indonesia (CEIC Insights,n.d.)
Strengths:
The economy of Indonesia is driven by a powerhouse of strengths. Its diverse natural
resources, ranging from minerals and oil to fertile land, power a dynamic export engine,
with coal, palm oil, and tin leading the way. Meanwhile, when the "demographic
dividend" rises in the coming years, Indonesia's youthful and rising population provides
an affordable workforce and predicts a boom in domestic demand. The growing tourist
business, where visitors are drawn by magnificent landscapes, varied cultures, and
affordability, contributes considerably to both GDP and jobs. Notably, Indonesia's
"Investment Grade" bonds and flexible currency rate represent the country's
macroeconomic stability and resilience to external shocks, which encourages more
investment. (Coface, 2023)
Weaknesses:
Despite significant expenditures, poor infrastructure such as roads, ports, and electrical
grids remains an important barrier to effective logistics and commerce. Furthermore,
the economy's reliance on Chinese demand makes it subject to shifts in Chinese
economic activity. The enormous archipelago, with its different islands and
nationalities, produces market fragmentation, providing logistical obstacles and
increasing regional business risks. Furthermore, Indonesia's geographical location
exposes it to regular catastrophes such as earthquakes and tsunamis, needing
comprehensive disaster preparedness systems. Finally, continuous corruption and a lack
of honesty within the government system discourage investment and impede corporate
operations. Addressing these issues is critical for Indonesia to achieve an economic
expansion that is inclusive and sustainable. (Coface, 2023)
With the rapid development of the digital technology, the E-commerce sector of Indonesia
plainly presents a golden opportunity for significant and long-term investment.
According to Statista (2023), the market is valued at roughly 62 billion U.S. dollars, thus
becoming the largest in Southeast Asia. One report highlights a 27% annual increase in
transaction volume (reaching $222.9 million), thus proving a promising outlook of
Indonesia's e-commerce (International Trade Administration, 2022).
Major players namely Shopee and Tokopedia dominate the market, particularly in the
business-to-consumer (B2C) segment, where Shopee leads with a US$14.2 billion gross
market value (International Trade Administration, 2022). The rise of business-to-business
(B2B) transactions is also projected to reach US$21.3 billion by 2023.
Compare to Vietnam:
Indonesia Vietnam
Larger market, explosive growth, mobile- Smaller but promising, focused on social
first commerce and rural markets
Figure 2.10a E-commerce market volume in Southeast Asia, 2019 – 2021, by country
(Iris, 2023)
Boasting supportive policies, B2B strength, Lower costs, strong customer loyalty, but
and a thriving digital ecosystem limited foreign investment
Figure 2.11 Key ESG (Environment, Social, and Governance) regulations (PwC, 2021)
ESG disclosure requirements in Indonesia are under the observation of the Indonesian
Financial Services Authority (Otoritas Jasa Keuangan, or OJK). In supporting the
implementation of ESG, OJK has created the Sustainable Finance Roadmap in two phases,
which boosts the supply and demand for environmentally friendly financing. Particularly,
the second phase integrates vital elements (awareness, non-governmental assistance, market
infrastructure, etc.) into a cohesive ecosystem, fostering a surge in organizations within
Indonesia adopting Net-zero targets.
Despite these advancements, concerns arise about sustainability assurance, with the need
for enhanced third-party verification crucial to combat "greenwashing." This becomes
increasingly pertinent as ESG regulations gradually tighten, necessitating more companies
to report on ESG indicators within and outside Indonesia starting in 2023.
In the past five years, Indonesia has grappled with serious human rights issues,
encompassing crackdowns on protests, curbing freedom of expression, and online
communication criminalization (HRW, n.d.). Religious minorities, especially Ahmadis and
Christians, face harassment and violence, amplified by contentious blasphemy laws.
Indigenous communities, notably in Papua, endure conflict-related migration and resource
exploitation (Amnesty International, n.d.). Women's rights, labor rights, and environmental
concerns compound the challenges (UNODC, n.d.). Addressing these issues demands
profound contemplation in foreign investments, emphasizing the crucial role of ethical and
sustainable corporate practices in navigating and alleviating these human rights challenges.
III. Final judgement on the investment decision into the
country
Considering the economic and political stability of Indonesia, as well as potential risks and
uncertainties, the country presents a compelling case for investment. Indonesia has shown
consistent GDP growth rates post the 2019-2020 pandemic, positioning its economy as
resilient and safe for investment amid global uncertainties. The inflation rate, though
witnessing a notable increase in 2022, remains 9% lower than the global average and is
expected to decrease to 3.2% in 2024 (Reuters, 2024; World Bank Group, 2023). The
government's clear policies, such as new investment support measures and simplification of
administrative procedures through the Omnibus Law, create a business-friendly
environment, fostering innovation and economic development (HSBC, 2023; Coface,
2023).
However, there are complexities in the Indonesian market, including its vast archipelago,
native languages, and potential challenges in adapting to cultural diversity. The depreciation
of the Indonesian Rupiah and rising inflation may impact household demand and private
investment (HSBC, 2023). Despite these challenges, the government's support for export
industries and initiatives to stimulate economic development through tax incentives and
financial assistance outweigh the risks, making Indonesia an attractive investment
destination.
Analyzing the market potential, Indonesia's e-commerce sector, valued at $62 billion, stands
as the largest in Southeast Asia, driven by a young demographic and high internet
penetration. The mobile-first market, digital wallets, and supportive government policies
also contribute to the sector's success. Although challenges exist, such as a lack of start-ups
and the need for expansion, Indonesia's e-commerce market still offers immense growth
potential and aligns with the company's expansion goals (Statista, 2023a; Das et al., 2018).
In conclusion, the comprehensive evaluation of economic stability, favourable regulations,
significant market opportunities, and alignment with cultural and social factors recommends
proceeding with the investment decision in Indonesia. The country's potential for economic
growth and stability indeed makes acceptance the wise and strategic decision for the
company's expansion pursuits.
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