Significance of Indonesia’s Industrial Park
Contributing almost a quarter of the national GDP and employing over a fifth of the working population, Manufacturing in Indonesia assumes great importance in attracting foreign investments.
Prompt Manufacturing Index – Bank Indonesia (PMI-BI) which is a composite indicator of manufacturing sector performance in Indonesia, indicated that manufacturing activities have increased in the first quarter of 2021 to 50% as compared to 47.29% in the fourth quarter of 2020. Factors like increase in production and sales volume are expected to further push the performance to 55.25% in the second quarter of 2021.
In order to encourage equal economic development in the country, the Government has mandated* industrial companies to run their activities in the industrial estates. Currently, there are 87 industrial estates, spread over the area of more than 86,000 acres across Indonesia,
These industrial estates, such as Kendal Industrial Park (KIP), provide adequate room for industrialists to focus on their core factory operations, rather than stressing about the infrastructure and other ancillary services.
Kendal Industrial Park (KIP) is a joint-effort between the Indonesia and Singapore governments, and has attracted many international investors to set up their manufacturing units in KIP.
Following are some advantages offered by KIP and similar industrial estates:
- Cost effective and easy availability of electricity and water
- Access to ports and major transportation routes for goods distribution and logistics
- Industrial Waste Disposal system is also provided to the tenants.
- The corporate income tax is reduced ranging from 30% to 100% for a time period up to 15 years depending on Industrial Estates Development categories that investors opt for.
*This mandate is excluded for companies with the following criteria: (1) Companies operating in the region that do not have industrial estates or its industrial estates have been fully occupied; (2) Small and medium-sized companies that do not cause environmental impact; (3) companies that process special raw materials and/or whose production processes require a specific location.
Manufacturing Opportunities in Kendal Industrial Park
A Government to Government (G2G) project, Kendal Industry Park (KIP) happens to be the largest industrial township development in Central Java covering over 2,200 hectares of area. It has already attracted over 61 tenants from different industries such as food, furniture, stationery, building materials, warehousing, and so on.
Manufacturing in Indonesia – Perks of setting up a in Kendal Industrial Park
Owing to the government support, KIP presents itself to be a profitable destination for investors looking to invest in Indonesia. Some of the factors contributing to its optimist outlook include :
- Sembcorp Involvement: Sembcorp Development is a leading Asian developer with more than 30 years of experience in the development of industrial parks. It has a portfolio of several private sector-led and government-supported projects in Vietnam, China, and Indonesia. The involvement of an organisation of the repute of Sembcorp ensures confidence in Singaporean and international investors alike.
- SEZ Incentives: Kendal Industrial Park is a part of Indonesia SEZ (Special Economic Zone) under which it grants investors various fiscal benefits like tax holiday up to 20 years, tax allowance of 30% divided into 6 years, exemption of Value Added Tax (VAT), and postponement of import duty. Simplified immigration and licensing are some non-fiscal benefits that investors get under KIP’s SEZ incentives.
- Integrated Infrastructure: The avid interest of the government in KIP as a National Strategic Project has led to a major impact on the country’s infrastructure. For instance, KIP is connected to all major cities of the island via The Trans Java toll road. Moreover, The Ahmad Yani International Airport is 21kms from KIP with direct international flights available round the clock. Seaports, train access, and accessible ring roads contribute to KIP’s sound integrated infrastructure which in turn translates to easier and cheaper logistics for businesses operating in the area.
- Competitive Wages: Kendal has a lower minimum wage as compared to other industrial cities in Indonesia. KIP’s minimum monthly wage in 2020 and 2021 recorded as US$ 156 and US$ 164 respectively. In comparison, the minimum monthly wages of other industrial parks in Bekasi, Surabaya, Bogor, and Semarang recorded a much higher figure of US$ 337, US$ 303, US$ 297, and US$ 198 respectively.
- Human Resources Availability: With approximately 14,232 students graduating from colleges, universities and vocational schools every year, availability of qualified and skilled human resources is abundant in Central Java. Moreover, new investments in KIP have lowered Central Java’s unemployment rate.
The culmination of all these factors, make KIP a strategic and favourable location for investors to set up their business and leverage untapped opportunities available in the manufacturing sector.
Manufacturing in Indonesia – Industries that have already set their footprints in KIP
With exports worth US$13.8 billion in 2019, Indonesia’s textile and garment industry exhibited considerable growth making it one of the world’s largest textile producers. The country produces 30% of its total output for domestic consumption, with the rest going to export markets such as the United States (36%), the Middle East (23%), the European Union (13%), and China (5%). By 2030, the government hopes to steer the country into the top five largest textile producers in the world.
Indonesia’s furniture industry is largely influenced by labour-related activities, as a result it has been designated as a priority sector. The furniture sector clocked US$779 million in revenue in 2018. With an annual growth rate of 19.1%, the revenue of 2022 is projected to be US$1,568 Million. The value of Indonesian furniture exports to the United States (US) increased to US$ 582.11 million in January-May 2020, compared to US$ 384.82 million in the same period last year.
Food and Beverage Industry
The F&B sector has received foreign investments worth IDR 293 trillion in the last five years. Despite diminishing demand due to the pandemic, the sector’s Year-on-Year growth rate clocked 3.94% and 0.22% in the first and second quarter of 2020 respectively.
In Q1, FDI realization in the Food Industry accounted for US$968.3 million of investment value and is projected to reach US$2,471 million of revenue by the end of this year.
Approximately 1.5 million autoworkers in the country are qualified as skilled workers, promising productivity at a lower input cost. Fitch Solutions research shows that Indonesia still provides attractive growth opportunities for new and existing automakers, scoring 73.2 out of 100 on its vehicle production growth indicator based on the firm’s five-year average forecast. The score is higher than Asia’s average regional score of 50.5 on the same indicator.
Electronic Manufacturing in Indonesia
The overall export value of electronic and telematics products reached US$7.8 billion during 2019. Revenue is expected to show an annual growth rate (CAGR 2021-2025) of 9.86%, resulting in a projected market volume of US$9.8billion by 2025. The 10 main destination countries were Singapore, the United States, Japan, Germany, Vietnam, Hong Kong, Malaysia, China, Thailand, and The Philippines.
The Indonesian freight and logistics market is expected to witness a CAGR of 10.27% during the forecast period (2020-2025). Technology and e-commerce have made important contributions to the logistics industry. Between 2015 and 2019, the value of e-commerce increased by 88 percent to US$21 billion. According to Google and Temasek, the figure will quadruple to $82 billion by 2025. As a result, a number of local businesses, as well as international investors and developers are competing to break into this mushrooming industry.
Commence Your Manufacturing Business in Kendal Industrial Park with Incorp
Doing business in Indonesia comes with its fair share of challenges. While you focus on the core business aspect of your company, Incorp’s comprehensive business solutions can help you in setting up your business in Kendal Industrial Park. Following are the areas that we excel in:
- Market Research: Our market study helps you answer common questions about the economic potential in the territory, government regulations, products, pricing and others.
- Company Registration: InCorp registers several companies every month, from PT PMA to PT or a Branch Office, saving the clients from the hassle of tedious registration processes.
- Legal Advisory: Our legal consultation services will help your business comply with applicable laws and regulations in Indonesia and stay on top of all statutory requirements.
- Business Licensing: Seamlessly obtain licenses and product registrations by submitting an online application with Incorp.
- Business Process Outsourcing: Outsource your secondary business services such as human resource management, payroll management, etc. to Incorp while you focus on the core activities of your enterprise.
With a myriad of services at bay, Incorp makes it a perfectly seamless experience for investors to interact with our unparalleled professionals and legal advisors.
Textiles and garments, food and beverages (F&B), electronics, automotive, and chemicals are the main areas of production, with the majority of manufacturers in this sector being micro, small, or medium-sized businesses.
- Machinery including computers: US$21.8 billion (15.4% of total imports)
- Electrical machinery, equipment: $19.1 billion (13.5%)
- Mineral fuels including oil: $15.8 billion (11.1%)
- Plastics, plastic articles: $7.2 billion (5.1%)
- Iron, steel: $6.9 billion (4.8%)
- Organic chemicals: $5 billion (3.5%)
Indonesian manufacturing benefits from two main factors: a plentiful supply of relatively inexpensive labor and rising domestic consumption fueled by a rising middle class.
Due to its cost-effective labor, Indonesia is becoming a lucrative destination for foreign investors. Manufacturing, maritime, transportation, banking, and tourism are among the industries that have been prioritized.