Indonesia Sector report

February 2021

Sectors @ a glance

Industry performance outlook

Agriculture

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Automotive/ Transport

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Chemicals/Pharma

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Construction/ Const. Materials

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Consumer Durables

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Electronics/ICT

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Financial Services

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Food

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Machines/ Engineering

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Metals/Mining

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Paper

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Services

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Steel

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Textiles

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Agriculture

The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.

Remains Fair Agriculture is one of the most resilient sectors amidst the coronavirus pandemic in Indonesia. In Q2 of 2020, output grew 16%, decreasing to 2% growth in Q3. According to the Ministry of Agriculture, in the period of January-September 2020 exports increased 10%. One key to the sector’s good performance is the government policy of increasing the social security net budget.

Automotive/Transport

Remains Poor Automotive value added is expected to grow 28% in 2021 after a 35% decrease in 2020. While sales of vehicles have started to rebound in Q4 of 2020, sales of motorcycles still remain subdued. Although the market potential for automotive is strong in Indonesia, a comprehensive recovery depends on the rebound of other industries and rising purchasing power of households. Despite the downturn, payment behaviour in the sector has been sustainably good so far, with no major payment issues or delays among manufacturers and wholesalers.

The transport and warehousing business sector shows signs of recovery, growing 24% in Q3 of 2020. This was due to bonded logistics center (PLB) facilities offered by the government and cheaper warehouse rental rates in Indonesia (e.g. compared to Singapore). Commercial passenger air transportation still faces serious issues, but it is expected to gradually recover once the vaccine has been well distributed to the whole population.

Chemicals/ Pharmaceuticals

Remains Fair According to the Central Statistics Agency, chemicals and pharmaceuticals had the highest growth rate in Q3 of 2020 compared to other manufacturing sectors. However, the average utilization rate of basic chemical manufacturers was still just 40%-60%. With the expected rebound in 2021, chemicals value added is expected to increase by 8%, after a 5% contraction in 2020.

Pharmaceuticals value added is forecast to increase by 6% in 2020, driven by increased health spending. About 90% of the pharmaceutical companies active in Indonesia focus on the downstream sector in producing medicines.

Construction/Construction Materials

Remains Fair According to the Investment Coordinating Board, public construction investment has increased in the period of July-September 2020. However, in H2 of 2020, the sector still struggled with large scale social restrictions. Therefore, several projects have been delayed or even postponed, causing many construction companies to book losses due to the overrun costs incurred from the delays.

A rebound is predicted for 2021, with value added expected to increase 7%. The residential segment is estimated to reach a construction value of IDR 52.46 trillion, with delayed apartment projects planned to restart. The overall trend of new housing projects will continue, and demand for integrated cities after the pandemic outbreak will increase. Commercial construction will be driven by demand for warehouses from fast moving consumer goods, e-commerce and online retailers, and third party logistics.

Consumer Durables

Remains Fair Indonesia’s GDP contracted in Q3 of 2020, turning the economy towards recession. Private consumption remains muted, with lower business activities and higher unemployment. Retail stores located inside shopping malls remain open, although footfall is lower than usual, due to capacity restrictions and shortened operating hours. Payment delays from retailers increased in June and July 2020, only to decrease again in the following months. However, another surge in late payments and defaults cannot be ruled out should the government impose stricter measures to contain the pandemic. Retail value added is expected to rebound 4% in 2021 after a 6% contraction in 2020.

Electronics/ICT

Remains Fair In H1 of 2020, domestic ICT sales deteriorated due to the temporary closure of businesses during the lockdown and subsequent delays in the completion of projects. However, demand for ICT products has rebounded since H2 of 2020 with the reopening of retail stores and increase in projects supplying hardware and other IT infrastructure. Businesses and schools continue to invest in IT infrastructure to meet requirements for remote working and learning. ICT wholesalers and suppliers for projects have been able to retain the level of revenues and margins recorded in 2019, and the number of non-payments in this sector remains low. ICT value added is forecast to increase 11% after growing almost 4% in 2020.

Financial Services

Remains Good The financial sector began to falter in Q3 of 2020, with financial intermediary services decreasing 2.7% and other financial services declining 3%, as demand for credit decreased. However, an intervention has been made by the Financial Services Authority to ensure that the stability of the financial services sector is maintained. The financial sector started to recover in Q4 of 2020, as the economy gradually picked up again. In 2021 the financial service sector is expected to continue to rebound in line with nationwide vaccine distribution, which will help boost business activities across all sectors.

Food

Remains Fair The outlook for the hospitality and food services sectors remains weak due to imposed social restrictions in major cities in Bali and the Java province. Therefore, demand for food items has shifted from the hospitality sector to home consumption. Food production has again increased in H2 of 2020, and value added is expected to grow 7% in 2021.

Machines/Engineering

Remains Fair In H2 of 2020, many heavy machinery manufacturing companies and wholesalers performed poorly as the sector continued to contract, indicated by a low production rate at around 60%. Payment delays have increased, as many buyers in the the mining and construction sector still have cashflow issues. However, the agriculture-related engineering segment has contributed positively to the sector’s performance. Engineering value added is expected to rebound by almost 9% in 2021 after a 5% contraction last year, in line with nationwide vaccine distribution, which will help boost business activities across all sectors.

Metals/Mining

Remains Poor In the period of January-November 2020, new investment in the Indonesian mining industry was well below budget, totalling USD 2.2 billion (against the original target of about USD 7.7 billion). This was due to sluggish demand amidst the pandemic, as well as a result of low coal prices. The government estimates that metal smelting projects worth USD 3.7 billion have been delayed until 2021. However, Indonesia's primary nickel output is projected to increase further in H1 of 2021, as the government has facilitated exports. Mining value added is expected to decrease about 0.5% in 2021 after declining 4% in 2020.

Paper

Remains Fair The sector remains impacted by the ongoing digitalization, which has led to decreasing demand over the last couple of years. Lockdown measures have additionally led to lower demand in H1 of 2020. However, demand for brown packaging paper is still relatively stable (especially from food, fast-moving consumer goods and e-commerce businesses). Paper value added is expected to increase by about 4% in 2021 after a 4% decline in 2021.

Services

Remains Poor Due to the comprehensive lockdown measures in early 2020 and the ongoing pandemic, many segments have suffered heavily, especially tourism-related ones. These include hotels, restaurants, bars, entertainment and cultural events, travel agencies and tour operators. Hotel and catering value added is expected to have contracted 19% in 2020, and a rebound is currently not in the cards, due to still rising coronavirus cases and the ongoing ban on foreign tourism. Thousands of hotels and restaurants have been forced to close, while a number of airlines and tour operators have suffered major losses. In H2 of 2020 both payment delays and insolvencies increased in the tourism-related service segments. The outlook for 2021 largely depends on how the pandemic situation evolves in the country, as there are currently still restrictions in place, particularly in Java.

Steel

Remains Poor According to the Indonesia Iron and Steel Industry Association (IISIA), the utilization level of steel manufacturers improved to 40%-70% in August 2020 (in H1 of 2020, the level was only at 20%-50%). Although demand from public construction (government infrastructure projects) remained stable, many private building projects have been delayed, and demand from automotive is still stagnant. Payment delays increased in H2 of 2020, but the rise was not immense. In 2021 steel value added is expected to grow 5%, given that delayed private construction projects will resume and demand from automotive will rebound.

Textiles

Remains Poor The textile sector is one of the industries most affected by the pandemic, suffering a 19% year-on-year contraction in Q2 of 2020, due to shopping mall closures and social distancing measures affecting retailers. The performance has improved somewhat since Q3 of 2020, but it remains subdued for the time being.

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