Indonesia’s Imports of Chemical Products

chemical industry in Indonesia

Current Context and the Indonesian Government’s Vision

The purpose of the following report is to present an overview of the selected segments of the Indonesian chemical sector and to highlight potential opportunities for European businesses.The manufacturing industry has reached unprecedented growth, contributing 18.1% to the country’s GDP in 2015 (compared to 17.8% in 2014) and is expected to reach 25% annually by 2025. Chemical and pharmaceutical products contributed 1.81% to that growth. The country itself has abundant raw materials to support the chemical industry, such as its production of Certified Palm Oil (CPO) and rubber, ranked first and second in the world respectively.

In order to fulfill the requir ements of the chemical manufacturing industry, imports are required.Imports of raw materials have been increasing since 2011, growing from US$ 5.1 million to US$17.1 million in 2014. During 2015, the imports of chemical products represented 19.18% ofoverall imports to Indonesia, rising from 15% in 2012.

The import of basic chemicals from 2010 to 2014 has increased by 23.90%, contributing 4.74%to total imports. Chemicals such as; polymer products with 2.45%, polyethylene with 0.94%, andpolypropylene with 0.81% are imported in enormous quantities to meet the requirements ofmajor industries in Indonesia. These chemicals are considered to be very important and arefrequently used in the process of producing final goods.

The government has recognized this trend in the implementation of their vision of “Indonesia asa strong industrial country”, by placing chemical-related industries, such as the agro, oil, gas,and coal-based chemical industries as the upstream industry to develop related downstreamindustries. The development of that upstream industry will take some considerable time as thistype of investment is usually capital-intensive. On the other hand, existing major chemicalcompanies have expanded or plan to expand their production capacities to cope with thegrowing demand.

The government has recognized this trend in the implementation of their vision of “Indonesia asa strong industrial country”, by placing chemical-related industries, such as the agro, oil, gas,and coal-based chemical industries as the upstream industry to develop related downstream industries. The development of that upstream industry will take some considerable time as this type of investment is usually capital-intensive. On the other hand, existing major chemical companies have expanded or plan to expand their production capacities to cope with the growing demand.

chemical industry in Indonesia

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Current Context and the Indonesian Government’s Vision

Indonesia has experienced steady economic growth between 2009 and 2014 with an average growth of 6%. Due to the instability of the global economy in recent years, the economy grew 4.8% in 2015. However, this figure is still considerably better than the rest of the world (3.3%)and ASEAN of (4.6%).The global economic slowdown has led to the declining roles of several main industries in Indonesia, such as oil and gas, commodities, agriculture, and mining. On the other hand, it has increased the importance of the manufacturing industry, which has contributed 18.1% to the country’s GDP in 2015 (compared to 17.8% in 2014).2 In Indonesia’s manufacturing industry,leading sectors include food and beverages with a 5.61% contribution to GDP share,transportation equipment with 1.91%, metal products, computer; electronic goods, and electricale quipments with 1.96%, along with chemical and pharmaceutical products with 1.81%. The manufacturing industry is expected to grow strongly in the coming years.

With 250 million inhabitants, Indonesia records a rapidly growing middle class of more than 140 million (the largest in South East Asia), a factor which makes Indonesia an interesting investment destination. In addition, the country is home to a large number of consumer and industrial goods manufacturers in need of chemical products for production purposes. The country itself has abundant raw materials to support the chemical industry, such as its production of CPO and rubber, ranked first and second globally.

Investment in the Indonesian chemical industry itself has been on the rise, as stated by the Indonesian Investment Coordinating Board (BKPM), constituting the largest contributor in value to FDI inflows, valued at US$ 3.142 billion in 2013 (an increase of 13.43% from 2012), led bythe petrochemical segment. With the expected overall growth of the manufacturing sector,estimated at 25% annually until 2025, the chemical industry’s contribution (now at 12.5%) will most likely grow accordingly. Hence, it is expected that the demands on the chemical industry will rise, a growth that can only be sustained through large direct investments in the sector,which will accompany the growth of the manufacturing industry and consumption.

The import of basic chemicals from 2010 to 2014 has increased by 23.90%, contributing 4.74%to total imports. Chemicals such as; polymer products with 2.45% market share, polyethylene with 0.94%, and polypropylene with 0.81% are imported in enormous quantities to meet the requirements of major industries in Indonesia.These chemicals are considered to be very important and are frequently used in the process of producing final goods.

In order to realize the vision of Indonesia as a strong industrial country, groundwork needs to be laid out in order to increase its competitiveness, as described below. Currently, Indonesia ranks 56 out of 144 countries in regards to infrastructure preparedness (World Economic Forum) and is fertile ground for foreign direct investment. The President of the Republic of Indonesia Joko Widodo, has made a bold move by cutting subsidies on fuel, as it amounted 13% of Government spending budget in 2015, in order to enhance development of infrastructure,education and healthcare.

The development of the chemical industry and related Indonesia business Network (as part of the upstream production), will take considerable time, as this type of investment is usually capital-intensive.Presently, investment in oil, gas, and coal based chemical industries are still showing modest growth in the country. Thus, importation is still viewed as the primary way to accommodate the demand for chemical products from existing customers and industries in the country.

 

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