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Overview of Automotive Sector in Indonesia

The automotive industry in Indonesia remains to be a promising sector that contributes significantly in boosting the economic growth of the nation. According to the Minister of Industry Republic of Indonesia, Agus Gumiwang Kartasasmita, the automotive industry in Indonesia experienced an extraordinary growth in 2021, with a double-digit growth of 17.82 percent. The absorption of labor is also high, with an amount of 1.5 million direct labors, and 4.5 million indirect labors, producing up to a total of 2.35 million units of vehicles in a year.

Automotive Production in Indonesia

Figure 1. Automotive Production 2020 – 2022 (Jan-Mar)
Source: Association of Indonesia Automotives Industries (GAIKINDO)

The data above illustrates the total automotive production in Indonesia from 2020 until 2022 (January-March), which is dominated by Passenger Cars (Sedan, 4×2/4×4, LCGC, etc.), followed by Commercial Vehicles (Truck, Bus, etc.).

In general, the production of automotive in 2020 experienced a quite significant decline to 690,176 units in total, compared to the previous years. This is due to the global Covid-19 pandemic which decreased productivity in most sectors. However, in the following year, this sector has grown again quite rapidly, with a total production of 1,121,967 units, almost doubling the total of 2020. The year 2022 is expected to be another strong year of the production of automotive. In the first quarter of 2022, the total production of automotive (364,372 units) has a value more than half of the total throughout 2020 (345,088 units), and a faster trend by looking at the 2021 data.

Automotive Export and Import

Figure 2. Automotive Export and Import 2019-2021
Source: Statistics Indonesia

In the period of 2019-2021, the trade in automotive sector in Indonesia showed a surplus in all years. Both exports and imports experienced a decline in 2020, where the global pandemic caused restrictions and disruptions in business activities, hence, hinders the global supply chain, affecting total production. However, in allign with the strong production in 2021, both values of export and import showed a significant increase, with a trade balance of USD 1.93 billion. Although 2021 showed the strongest trade activities for the last 10 years, the trade balance surplus in 2021 was the lowest compared to 2019 and 2020 which has a balance value of USD 2 billion and USD 1.95 billion, respectively.

Based on the data from Indonesian Statistics, the top export destinations for four or more wheels types of transportation are to the Philippines, Saudi Arabia, Vietnam, and Thailand, while the top import origins for automotive are mostly from Japan, Thailand, India, and China.

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Investment Projects in Automotive Sector

Figure 3. Foreign Direct Investment in Automotive Sector 2019-2021
Source: Ministry of Investment Republic Indonesia (BKPM)

The graph shows that the value of investment in Indonesia keeps increasing from 2019 (~USD 754 million) until 2021 (~USD 1.5 billion). Even though the number of projects has the smallest amount in 2021, but the highest worth of investment can reflect that investors trust to plant more valuable investments in Indonesia.

According to BKPM, the largest number of projects planted in this sector in 2019-2021 came from Japan with a total of 2,657 projects with a value of USD 1.29 billion. However, investors who established the largest investment value came from South Korea with a worth of USD 1.44 billion or equivalent to 103 projects.

Table 1. Top 5 Automotive Investment Project Location Plants in Indonesia:

No.Location PlantsProjectsInvestment Value (USD Thousand)
1.West Java2,7022,766,202.2
2.Riau Islands269205,766.6
3.Central Java4374,505.5
4.Jakarta Capital Territory31462,367.2
5.East Java11661,299.2

Investments in the automotive sector are mostly done in Java Islands. Nevertheless, it does not rule out the possibility that further projects could be planted in outside Java Islands. Although the advanced industrial estate in Java is the most well-known, there are many more industrial estates distributed in Indonesia on several islands. To support equitable development, the government supports plantations of projects evenly across Indonesia, with the offer of more incentives for project establishments outside Java Island.

Opportunities and Advantages of Automotive Sector in Indonesia

In 2021, the government noted the investment in the automotive sector reached IDR 140 trillion, with the production around 2.35 million units of vehicles. Based on some considerations, the government provided sales tax incentives for luxury goods (PPnBM) for four-wheeled vehicles. According to the Minister of Industry Republic of Indonesia, Agus Gumiwang Kartasasmita, this incentive is projected to reduce sale shocks and continue to maintain the growth momentum of the automotive industry, while increasing the utilization and performance of the automotive component industry sector. Kartasasmita also said that this incentive was proven to be able to provide stimulus for the improvement of supporting industries, especially those engaged in the automotive component industry.

The growth of the transportation industry of 17.82 percent in 2021 has showed that the automotive sector is one of the main supports for the growth of the manufacturing industry and the national economy. The automotive sector itself contributes around 4 percent to the total GDP in Indonesia. Aside from the rapid growth, the quality of the automotive products in Indonesia has proved its competitiveness, as it has penetrated the Australian market by exporting two million units of cars, whereas Australia is known to have strict specifications regarding automotive. This has shown that Indonesian automotive has high potential of penetrating more foreign markets especially neighbouring countries, making Indonesia a promising production hub.

Sources: The Association of Indonesia Automotive Industry, Statistics Indonesia, Ministry of Investment Republic of Indonesia

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