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Sleeping Giant: Indonesia’s Growing Automotive Industries

Both the motorcycle and automotive sectors have their production base centred in Bekasi, Karawang and Purwakarta in West Java.

Sleeping Giant: Indonesia’s Growing Automotive Industries

Indonesia is the world’s most populous Muslim-majority country, and is also ASEAN’s biggest economy. By Jonathan Chou

With a population of 263 million, Indonesia is the world’s most populous Muslim-majority country and the fourth-most populous country in the world. Ranked the 16th largest economy in the world in terms of gross domestic product (GDP) by the World Bank, the country is also the largest economy in the Association of Southeast Asian Nations (ASEAN).


Manufacturing Exports

The automotive industry is a pillar in the country's economy

The automotive industry is a pillar in the country’s economy.

The World Bank reported that Indonesia’s quarterly GDP growth rose from 4.9 percent in the last quarter of 2016 to five percent in the first quarter of 2017, lifted by a rebound in government consumption and surging exports. Private consumption growth has been robust, supported by a stable currency and muted inflation. Indonesia’s real GDP growth is projected to increase from five percent in 2016 to 5.2 percent this year, and further strengthen to 5.3 percent in 2018.

The United Nations Industrial Development Organisation (UNIDO) has also listed Indonesia as one of the world’s top 10 manufacturers in 2016. The manufacturing industry accounted for almost a quarter of the country’s GDP, and its top export destinations were the United States (US$20 billion), China (US$18.5 billion), Japan (US$18.5 billion), Singapore (US$13.6 billion) and India (US$12.6 billion).


A Rising Middle Class

Shadia Hajarabi, UNIDO’s representative in Indonesia, said that that China and India used to have higher economic growth compared to Indonesia. In recent years, however, economic conditions in those countries have fluctuated, resulting in economic slowdowns. “Indonesia’s economy has been relatively stable compared to other countries in the region,” said Mr Hajarabi, adding that the government had maintained the inflation rate at 4.5 percent.

“In 2010, there were 50 million poor people in the country. Now it is almost half,” Mr Hajarabi explained, adding that this figure indicated that Indonesia could rely on the domestic market to boost economic growth instead of relying solely on exports.

Indonesia is also home to a growing middle class. The country’s affluent consumer classes are expected to double in size—from 74 million to 141 million—by 2020, according to the Boston Consulting Group.


Motorcycle Manufacturing

A huge driver in Indonesia’s domestic market is the motorcycle industry. The country has over 65 million motorcycles, and according to the Indonesian Motorcycles Industry Association (AISI), domestic sales for motorcycles were 3.794 million for January to August 2017.

This was a slight drop compared to 3.795 million motorcycles sold in the same period last year, but the organisation expects sales of two-wheelers in the archipelago to rebound on the back of a better economic outlook that would support customers’ purchasing power.


Export Markets

Additionally, exports of motorcycles have also surged in recent years. Motorcycle exports jumped from 41,700 in 2014 to 228,200 in 2015. The upwards trend has continued, with 284,100 units exported in 2016, and 267,320 units in the period from January to August 2017. Main export destinations include Germany, Netherlands, Belgium and the United Kingdom and the Philippines.

The Philippines, in particular, is shaping up to be an emerging market for motorcycle exports. It saw the biggest sales volume growth in the ASEAN region, posting a 13 percent year-on-year increase for the first half of 2017, according to the country’s Motorcycle Development Program Participants Association. With free trade agreements within members of ASEAN, this makes the Philippines an attractive market for motorcycle exports.


Automotive Manufacturing

A huge driver in Indonesia's domestic market is the motorcycle industry.

A huge driver in Indonesia’s domestic market is the motorcycle industry.

The automotive industry is another pillar in the country’s economy. The Indonesian Automotive Industry Association (Gaikindo) reported that total car sales in Indonesia reached 715,291 units from January to August 2017, up 3.5 percent from sales in the same period one year earlier.

The sales of cars is forecast to hit 1.1 million this year and expected to increase in the next few years due to low per capita car ownership, which raises opportunities for automakers. According to Frost & Sullivan, low cost green cars exhibited the highest growth in the passenger car segment with 38.3 percent followed by the suburban utility vehicle with 23.7 percent and multi-purpose vehicle (MPV) with 10.3 percent. The top three players in the passenger car segment consolidated their market position through new model launches in key volume segments. Toyota led with a 43 per cent share in the segment, followed by Honda with 23.3 per cent and Daihatsu with 17.3 per cent.

The entry of SGMW Motor Indonesia into the market will also mean increased competition. The company is a joint venture between Shanghai-based SAIC Motor Corporation Limited, General Motors and China-based Liuzhou Wuling Automobile Industry Company Limited, and will see cheaper car models entering the market, especially in the MPV segment. The joint venture aims to have a 10 percent share in the local car market by 2022. Moreover, it will also be used as a base to enter the ASEAN market.

Both the motorcycle and automotive sectors have their production base centred in Bekasi, Karawang and Purwakarta in West Java. This is supported by the port of Tanjung Priok in North Jakarta, which handles over 50 percent of Indonesia’s trans-shipment cargo traffic.

To further accommodate growing demand, the Patimban Seaport is slated to be built in West Java at a cost of US$1.3 billion. The new seaport is designed to have a container capacity of 1.5 million 20-foot equivalent units (TEUs) once it is partially completed in 2019 and 7.5 million TEUs by 2027.


Fullest Potential

Although the biggest economy in the region, a skilled workforce is needed in order to keep up with the increasingly competitive global economy and rising labour costs.

Currently, university graduates compose only seven percent of its total workforce (compared to 21 percent in Malaysia, for example), and the World Bank recently found that that the number of Indonesians with tertiary degrees will need to triple if the country is to meet its economic potential.

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