Indonesia offers Saudi Arabian businesses some of the best investment opportunities in the region. With a growing middle class, abundant resources, and a government prioritizing foreign investment, Indonesia is a strategic and lucrative market for Saudi Arabian companies looking to diversify their portfolios.
This article explores the key sectors where Saudi businesses can establish a foothold and forge strong partnerships to achieve mutually beneficial growth by taking advantage of the best investment opportunities available.
Why should Saudi businesses invest in Indonesia?
Diplomatic relations between Indonesia and Saudi Arabia began on May 1, 1950, with the opening of the Indonesian Mission in Jeddah, which became an embassy in 1964. In 1985, Indonesia moved its embassy to Riyadh and opened a consulate in Jeddah to strengthen economic and socio-cultural ties.
Saudi Arabia was among the first Arab countries to recognize Indonesian independence in 1947. The countries cooperate well in international forums such as the UN, G20, OIC, and NAM.
Bilateral cooperation has grown, particularly in the economic sector, highlighted by the signing of 11 agreements during King Salman’s visit to Indonesia in February 2019. Since establishing diplomatic relations, Indonesia and Saudi Arabia have signed over 40 bilateral agreements, continually expanding their cooperation in creating the best investment opportunities.
Read more: 7 ways company registration numbers benefit your business
Indonesia’s best investment opportunities for Saudi investors
Indonesia offers some of the best investment opportunities for Saudi investors, presenting a range of lucrative prospects across various sectors.
The opportunities span numerous industries, each with its unique potential for high returns. These best investment opportunities include but are not limited to, the following sectors:
Halal Sector
As the world’s most populous Muslim nation, Indonesia has the largest Halal market, especially in the food, tourism, cosmetics, and pharmaceutical industries.
According to Government Regulation 39 of 2021, products entering, circulating, and trading in Indonesia must be Halal certified unless they originate from materials prohibited under Islam (Haram).
Indonesia aspires to become a global Halal hub. By 2025, Muslim consumers are expected to spend approximately USD 247 billion on Halal food and beverages alone. Therefore, this sector is one of Indonesia’s best investment opportunities.
Electric Batteries
A meeting between Indonesia’s Coordinating Minister for Maritime Affairs, Luhut Binsar Pandjaitan, and Saudi Crown Prince Muhammad bin Salman in March 2022 highlighted Saudi Arabia’s interest in investing in Indonesia’s electric battery industry.
Indonesia aims to boost production to achieve a battery capacity of 140 GWh by 2030, with 50 GWh allocated for export and the rest for domestic electric vehicle industry use, primarily motorbikes.
Indonesia plans to boost investment in its EV battery sector to USD 33 billion by 2023, providing significant opportunities for foreign EV manufacturers. This strategic move positions Indonesia as a hub for one of the best investment opportunities in the rapidly growing electric vehicle industry.
Investment in IKN
Indonesia is also seeking Saudi investment for its new capital city project in East Kalimantan province, Nusantara (IKN). The city’s construction is estimated to cost USD 32 billion, and Saudi Arabia has expressed willingness to invest through Indonesia’s newly established USD 10 billion sovereign wealth fund.
The government aims to develop Nusantara into a low-carbon superhub that supports the healthcare and technology sectors and promotes sustainable growth beyond Java.
Tourism Sector
To boost Saudi Arabian tourist visits, the Indonesian government is undertaking various initiatives, such as collaborating with airlines and enhancing the performance of Indonesia’s creative economy sector.
Sandiaga stated that planes carrying Indonesian pilgrims to Saudi Arabia return empty, suggesting these flights could bring Saudi tourists to Indonesia. Indonesians spend over IDR 60 trillion annually on Umrah, providing opportunities for collaboration in food, clothing, and souvenirs from Saudi Arabia.
Challenges for Saudi businesses in the Indonesian market
When considering opening a business in Indonesia, Saudi Arabian businesses will face various challenges that can impact their success. Understanding and addressing these challenges is important for a smooth and profitable entry into the Indonesian market. Here are some key challenges to address to ensure a successful business venture in Indonesia:
Foreign Ownership Limitations
Navigating Indonesia’s business laws and foreign ownership limits is complex. Foreigners can invest through the Positive Investment List, and PT PMAs require IDR 10 billion within five years. Representative Offices are an option but can’t generate revenue.
Complex Government Regulations
Business registration involves navigating bureaucratic processes, requiring multiple documents and frequent updates as regulations change.
Elaborate Taxation System
Indonesia’s taxation includes corporate income tax, employee withholding tax, value-added tax, and individual income tax. Compliance is mandatory. Third-party services like InCorp Indonesia can help with tax-related issues.
Visa and Permit Complexities
Obtaining visas and permits is challenging. Options include tourist visas, business visas, KITAS (employment), and KITAP (permanent for expats married to Indonesians). InCorp can assist with compliance.
Language Barrier
Indonesia’s diverse culture and over 700 dialects create language barriers. Effective marketing requires localization. Hiring local employees who are fluent in relevant dialects can help.
Infrastructure Development
Some regions face infrastructure challenges, such as inadequate transportation, unreliable power, and limited internet. Businesses may need to invest in infrastructure or adapt operations.
Cultural Sensitivity and Etiquette
Understanding Indonesian culture and etiquette is crucial. Proper greetings, gestures, and recognizing hierarchy are essential for building rapport.
Competition and Market Saturation
Indonesia’s emerging market attracts global businesses, leading to intense competition. Market research, unique value propositions, and local partnerships are essential.
Labor Regulations and Disputes
Labor laws are complex, and disputes are common. Understanding and complying with labor regulations, including hiring and termination, is essential. Clear HR policies and legal advice can help.
Intellectual Property Protection
Protecting IP rights is important. Companies should register and enforce their IP rights to prevent counterfeiting and unauthorized use. Legal assistance and IP registrations are advisable.
Guide to Doing Business in Jakarta
How can Saudi businesses invest in Indonesia?
If you are a Saudi Arabian investor aiming to expand your business in Indonesia, InCorp could be your ideal partner. We offer comprehensive incorporation and Investor KITAS services to simplify setting up your business in Indonesia, ensuring you can take full advantage of the country’s best investment opportunities.
Moreover, our halal certification service ensures that your products meet the stringent halal requirements in the world’s largest Muslim-majority country.
Partnering with InCorp ensures smooth navigation of Indonesia’s regulatory landscape, allowing you to concentrate on your business growth. Contact us for more information and take the first step towards a successful expansion.
Pandu Biasramadhan
Senior Consulting Manager at InCorp Indonesia
An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.
Frequently Asked Questions
CV (Commanditaire Vennootschap) is a proprietary business entity that houses several individuals to run a business.
The Indonesian Halal bodies recognize some of the international halal certifications. Nevertheless, since there might be differences in the standards used by each certification body, it is still necessary to process Halal Certification in Indonesia.
An Indonesian Family KITAS/ITAS is issued to family members. They can be a spouse and/or children under 18. It is illegal to work in Indonesia with a family KITAS/ITAS. To work legally, a Work ITAS is required.
In Indonesia, the necessity of hiring Indonesian employees by foreign companies typically arises from commercial requirements, regulatory mandates in specific sectors like construction or shipping, or as part of employing foreigners to fulfill knowledge transfer obligations.
