One of the largest changes is that the technology field has been expanding at a tremendous rate. Indonesia has continued to follow the growth of digital adoption since the increased use of smartphones Internet services have become affordable. This has led to a thriving dynamic digital economy situation whereby such sectors such as e-commerce, fintech, and ride-hailing industries can grow exponentially. This is due to the fact that the country’s population is large and young, with a good percentage of the young population being very tech-savvy, making them innovative and enterprising in this particular area.

Being an archipelago with some of the most strategic locations around the world, Indonesia has received lots of investment in most sectors due to its reliance on natural resources. Due to well established natural resources in minerals, energy resources, and agricultural products in addition to its strategic position as a gateway to the Asia Pacific region, the country has been deemed suitable for investment by foreign investors due to the potential of expansion. Read more below to know more.

The Indonesian market economy is considered competitive and it is constantly evolving as it is affected by the geographical position and rich resources Indonesia possesses. Indonesia has maintained a consistently high rate of growth as it is the largest economy in Southeast Asia. It boasts of stable and thriving sectors like agriculture, mining and energy as well as the new players like manufacturing and financial services as well as digital technology. These diversified economies have laid a good foundation in terms of coping with the challenges of the world economy.

In the last couple of decades, Indonesia was in a process of orientation towards industrialization and urbanization. It has been instrumental in fueling both domestic demand and investment. One of the key drivers of such change has been the growth of the middle class as the incomes have increased and people shifted their consumer preferences. This emergent middle class is not only helping to build the local markets but also encouraging international companies to look for new ventures.

 In 2023, Indonesia’s economy demonstrated steady growth, with Gross Domestic Product (GDP) reaching IDR 20,892.4 trillion and GDP per capita hitting IDR 75 million or USD 4,919.7. Despite a slight dip from the previous year, the economy expanded by 5.05%, with notable sectors like Transportation and Storage leading the production side growth at 13.96%. In the fourth quarter, Indonesia saw a 5.04% increase in economic growth, with robust performance in sectors like Public Administration and Defence. Regionally, provinces like Maluku Papua, Sulawesi, and Kalimantan showed significant growth reflecting the country’s spatial economic expansion. These economic indicators signal Indonesia’s resilience and potential for businesses considering entry into the market. 

Moreover, Indonesia’s manufacturing sector sustained expansion for seventeen months, with the January 2023 Purchasing Manager Index reaching 51.3% up from 50.9% in December 2022. This resilience amidst global economic challenges underscores the importance of bolstering domestic demand and advancing downstream activities within the sector. Indonesia’s PMI has successfully outperformed several countries, including Malaysia, Vietnam, and South Korea, reflecting the country’s robust economic performance amidst regional dynamics and business license Indonesia.

Furthermore, the manufacturing industry has also contributed significantly to the growth of the Indonesian economy. This has occurred due to government laid industrial development and pull strategy aimed at attracting foreign direct investment (FDIs) for development of manufacturing clusters all over the archipelago. These hubs cover automotive, electronics, textiles etc, and play a very important role in job creation and in the overall export earnings.

Specifically, Indonesia has realized it can make more significant strides toward integrating into the global economy through improved trade and investment policies. State has made a lot of changes in economic policies and regulatory measures with the purpose of raising the investment environment, decreasing the number of barriers, and stimulating the changes. Milestones like executing the one stop shop, improving legal reforms, and offering incentives for Foreign Direct Investment (FDI) help to incentivize both domestic and global investors.

The main expert source that has been used in this brief is the World Bank as Indonesia’s Gross Domestic Product is expected to expand by roughly about 5%. It will result in a forecasted value of in 2024 due to strong private consumption and the recovery of domestic demand after the COVID-19 pandemic. This growth is further underpinned by sustainable inflation rates which are being projected to average around 2.8%​​. Indonesian authorities are also committed to improving the business climate in the context of the country’s economic expectations. Here is an in-depth look at the main sectors contributing to this growth:

The consumer goods and retail sector in Indonesia grew significantly in 2024 as shown in the figure below, illustrating the changes in the country’s economy and consumer behaviors. These factors are interrelated which strengthened the demand and changed the market growth.

One of these factors was the growth of the middle class in Indonesia, which became one of the main driving forces of increased consumption. Indonesians purchasing power expanded as more joined the middle-income class, thereby becoming capable of spending more of their budget on non-essential products and services. It changed the consumption demographics, needs and desires, led by population aging, increase of per capita income and growing importance of urban residents’ consumption.

Infrastructure development is one of the backbones of Indonesia’s development plan and its vision for the future. The government has also been to increase funding for infrastructural development to cater for the country’s growing urbanization and economic activities. Some of them are transport infrastructure, energy works, and utility improvement. For instance, the partnership with the Japan Bank for International Cooperation on hydrogen and ammonia fuel development can be pointed out as a commitment to sustainable energy​. Furthermore, new wastewater treatment plant projects like the one at North Sumatra by Reservoir Link Energy Bhd signify ongoing enhancements in public utilization.

Infrastructure development goes much beyond the conventional structures and includes emerging areas such as smart cities and digital infrastructure. This is in line with the overall economic development objectives of integrating the different islands in the region with better infrastructure linkages. The various measures proposed under this plan regard the enhancement of the strategic infrastructure with the overall objective to decrease logistic costs, facilitate international trade and increase the level of economic efficiency.

Manufacturing continues to be a main pillar of Indonesia’s economy, indicating rather stable and steadily developing necessary for evolving capabilities. By contrast, the Purchasing Managers Index (PMI) for manufacturing up to 52.2 as at the end of December 2023 showing that sectoral growth is set to continue. The base metals remain a key growth driver, supported by increased investments in this area, and with a focus on nickel, an essential material for EV batteries. In the following, given its abundant nickel resources, Indonesia has competitive advantages that make the country an important participant in the global EV market.

Read more: Manufacturing Opportunities in Indonesia

The Foreign Direct Investment (FDI) has been boosted by Industrial infrastructure development to support manufacturing industries or the manufacturing sector and the enhancement of the regulatory framework. All these reforms aim at improving the operation environment and specific business conditions, thus transforming Indonesia into a more attractive country for investment.

The automotive industry is experiencing growth and especially the electric vehicle segment or what is also called the new automobile industry. As for 2023, the Indonesian EV sales increased by 322%, primarily due to increased consumers’ concern for the environment and the tendency towards sustainable transportation, as well as policy support, including exemption from operating odd-even traffic policies for fully electrical vehicles in Jakarta. The car manufacturing industry remains competitive with market players including Hyundai, Wuling, and BMW ramping up their production of EVs in Indonesia leading to the rapid growth of the sector.

This particular growth is due to generous nickel deposits in Indonesia, which is considered a vital material in EV batteries. Indonesia is right on track to become one of the most important centers of the EV market in the future due to the government’s strategic plans to expand the ecosystem that includes battery production and assembly. This strategic focus on EVs also corresponds to the shift towards sustainability and eco-friendly means of transportation worldwide.

In the year 2024 the agriculture industry of Indonesia was observed to have reached the peak level, which marks a crucial stage in the development of the Indonesian economy. This was driven by improvements in government policies directed at the modernization of the farming sector, increasing yields, and enhancing the stability of structures in rural areas with farming at its heart. Probably one of the most evident processes that contributed toward this increase was the advancement in use of technology in agriculture. Again, from the use of precision farming methods to the use of drone services in farming and crop management, technology has brought about change in the efficiency and productive capacity in the sector.

The increasing global trend toward organic and sustainable foods domestically and internationally meant that Indonesian farmers had a window through which to expand their existing product mix and take a cut of the higher margins. This was not only inline with global changes that focus on a more environmentally conscious form of consumption but also provided local farming communities with the ability to embrace sustainable farming methods that would meet changed customer preferences.

The expectations for Indonesia’s market in 2024 are optimistic with moderate economic growth and large amounts of investments. According to the forecasts, the GDP growth in Indonesia will vary from 4.7% to 5.5%, while the government has predicted a slightly higher figure of up to 5.7%. This growth is mainly underpinned by strong domestic demand, government expenditure, and investment in zones other than building construction. Nonetheless, the global economy is still facing challenges in the form of possible future recessions in developed nations and geopolitical issues, yet Indonesia has several cards up its sleeve.

Here, proactive monetary policy is identified as the primary factor in Indonesia’s economic stability. The inflation has been another area of concern for the Bank of Indonesia which has been closely monitoring to ensure that it remains within an average of 3.2% in 2024, they expect to see several subsequent increases in the interest rate to address imported inflation. These have assisted to keep down consumer prices since there is tendency of inflationary trends all over the world. Moreover, the expected global trend in 2024 towards a decline in key interest rates, especially in the United States and European Union, will help to maintain stability in the Indonesian economy and create conditions favorable for investment​.

Foreign direct investment or FDI remains to be an essential tool of Indonesia in achieving its economic goals. FDI flow into the country in 2023 was recorded at $47.5 billion, a 13.7% year-on-year increase. Although Indonesia’s growth rate is marginally lower compared to other countries in the region such as Vietnam and Thailand, these figures demonstrate investors positive sentiments towards the Indonesian economy. The main areas that can accommodate FDI include metals, transport and storage, telecommunication, manufacturing in the SEZs. These zones are important for Indonesia’s plan to attract more than $50 billion in foreign investment in the next ten years.

Read more: Which Indonesian Business Setup Suits You?

Another factor contributing to economic growth is development of infrastructure in Indonesia. The current government has initiated a massive plan to develop the infrastructure all over the country for the roads, ports, railways, and airports. These projects are not only improving the infrastructure and connectivity in the country but also play a significant role in the growth of the new capital of Nusantara. The emphasis on Transport Public-Private Partnerships (PPPs) to modernize transport infrastructure for improving access is expected to help redress regional imbalances and foster more integrated economic development across the Indonesian provinces.

However, Indonesia is located in southeast Asia and has good trade relations with the other ASEAN countries and the other countries of East Asia which strengthens the country’s economy. The leading source countries include Singapore, China, Hong Kong, Japan, and Malaysia which contribute a large proportion of FDI. These relationships are further complemented by Indonesia’s broad trade structures and deals that enhance the ease of doing business and investment.

It also demonstrated the potential for Indonesia’s economic growth through outgrowth of these key market segments. Employing analyses from the manufacturing, agriculture, and technology sectors, this article paints a picture of Indonesia’s ability to remain relevant despite facing challenging odds. Besides the creation of employment opportunities, there are long-term improvements to the development of these sectors as well as regional and global competitiveness.

At the same time requires the constant implementation of further infrastructure investment, education and further enhancement of regulatory environments in these market sectors. In those areas, Indonesia can enhance its position as a vibrant player in the global environment and result in improved and increased economic growth to the citizens of Indonesia.